Enter Gato Grottoes. Go to the Temple of Healing and work your way to the Dreamweaving Room in the far back. Talk to Daena and she'll let you in. Watch the scene between Escad and Matilda. Leave the room. Follow the Nun back into the room. Talk to Daena and agree to help her.
Exit out to the Gato Grottoes Map and head for the Caves. Talk to Escad and tell Daena to take you to the Sealed Room. Battle Spriggan and defeat him.
Upon Completion: Return home, talk to Lil' Cactus, go downstairs (watch him write the Event on the leaf), and go back upstairs to save your game before continuing.