Diermot enters the dragon's cave and wakes him up. The dragon agrees to help Diermot, revealing that Turnvale was the domain of a demon long before humans came to the area. This demon should have died along with his breed long ago, but did not perish because it was able to feed on man's greed and ambition in order to survive. The demon was driven out by the great Gethryn, but the young sorceress Selena's meddling with evil has reawakened the demon, and it controls her mortal form. The dragon possesses the Eye of Gethryn, an enchanted stone left by Gethryn at the time of his death. The stone contains the power to defeat the demon, and the dragon then gives the stone to Diermot. A Skorl named Wayne, who turns against Selena, sneaks Diermot into Selena's castle in a barrel. Diermot defeats Selena with the Eye of Gethryn, freeing Turnvale from her tyranny.