"In connection with this ‘thousand year reign’ of verses 4-6 we shall answer three questions.
First, where does it take place? According to the passage which we are considering it takes place in three places.
(i) The thousand year reign occurs where the thrones are, for we read: ‘And I saw thrones and they sat upon them. ’ Now, according to the entire book of Revelation, the throne of Christ and of His people is invariably in heaven (Rev. 1:4; 3:21; 4:2 if.; etc.).
(ii) The thousand year reign also occurs where the disembodied souls of the martyrs are, for we read: ‘And I saw the souls of them that had been beheaded for the testimony of Jesus. ’ John sees souls, not bodies. He is thinking of souls without bodies, for we read: ‘of them that had been beheaded’. In this entire passage there is not a single word about a resurrection of bodies. The distinction between soul and body is even emphasized: ‘the souls of them that had been beheaded’. True, the term ‘souls' at times means ‘people’ (e. g. Gn. 46:27). But in that case you can substitute the term ‘people’ for ‘souls’.
Here in Revelation 20 you cannot do so. The souls reign during this entire present dispensation until Christ’s second coming. Afterwards, it is no longer the souls that reign, for then body and soul are together again. Then the saints reign, not for a limited though lengthy period—a thousand years—but ‘for ever and ever’ (22:5).
(iii) The thousand year reign also occurs where Jesus lives, for we read ‘And they lived and reigned with Christ....’The question is, where, according to the Apocalypse, is the place from which the exalted Mediator rules the universe? Where does Jesus live? Clearly, it is in heaven. It is in heaven that the Lamb is represented as taking the scroll out of the hand of Him that sat on the throne (Rev. 5). Revelation 12 clearly states that Christ was ‘caught up to God and to his throne... Therefore, rejoice O heavens, and ye that dwell therein’.
We may safely say, therefore, that the thousand year reign takes place in heaven."
- from William Hendriksen's More Than Conquerors