This is the first level you've come to that features fog. Break down the trees ahead of you. Past here is a building mostly surrounded by a swamp. A barred-off muck-filled passage off to the right leads away. Inside the building you'll get a minor ambush of Afrits hiding in the clay jars.
Continue through the door beyond; you'll pass a window to the right looking out over another swampy area. Just past here is a big room filled with turbulent muck. On the opposite side are windows and a closed stone door. To the left is a wooden platform spanning the far wall, featuring decorations, one of which is an "odd one out." Light up the odd one out, and the panel with the image of Korax opens, with a switch and items inside. Press the switch, and the stone door between the windows will open. In here is a small network of corridors, with a stone door to the right, another ahead, and a wooden door to the left. Hit the switch inside the wooden door to open the center door; the switch in there opens the door to the right. That door leads outside. Also in this area you'll come across a new enemy, the Slaughtaur, a variation of the Centaur that fires an extremely damaging magical projectile from its shield.
Outside is another swampy area and a shack. The portal on the outer wall returns to Shadow Wood. Looking into the shack, you'll see a key inside. Around back near the portal is a vestibule to the shack. Look inside and press the switch you find. The shack won't be accessible yet.
Back outside, follow the muck stream down to a very large swampy area, on the far side of which is a tall battlement spanning the area. Watch out: the muck is flowing toward a very deep chasm in front of the battlement. Also in this area, under the covered section off to the right, you'll find the low end of the now-unblocked passage from the first swamp, plus the window before the wavy-muck room--which looks out into this area--has converted into a doorway.
Castle[edit]
Go to the wooden dock, find and pull the switch on top of the post. (The switch inside the vestibule back upstream made this switch pop up.) A bridge crossing the chasm will form, made of many sequentially-lowering segments. Past here is a doorway to a big courtyard inside the battlement. Around the round tower is a stairway leading up to the battlement. To the right is a curving stairway leading down, with a closed stone door at the bottom. Ahead is a door that needs the Cave Key. If you go up to the battlement you'll find the entrance to the tower, which needs the Castle Key, a key that's not part of the main puzzle. if you look down over the edge of the battlement in various places you'll attract Afrits down at the bottom of the chasm, which will fly up over the next couple minutes. (There are a few on each side of the bridge.)
When you're done exploring, look behind the tower, on the ground floor, and enter the wooden door here. At the end of this smallish room is a well. Jump down into it--it's not nearly deep enough to cause falling damage--and you'll find two switches. Press either one, and the well will fill up, plus you'll "hear a door open in the distance." It's the door to the shack that has opened. (Considering you were at the bottom of a well, inside a room, inside a castle, and you heard a door open clear across the level in another area altogether, either these doors are incredibly noisy or you have extraordinarily good hearing.)
Go back to the now-opened shack. In here is the Castle Key you need for the tower, plus another Icon of the Defender and many more items. Return to the tower and go inside, then look for and press the switch in here. If you don't see it, look carefully, and maybe smash things up a bit. The switch opened the stone door at the bottom of the curving stairs. Go there, and into what looks like a dining room to the left. From here there are two ways to go, both presently hidden.
Swamp Key[edit]
First off, this level's key, the Swamp Key, is nearby. Examine the fireplace without a fire, and you'll see a gap in the corner and an area beyond. Activate the back wall, and it slides back, revealing a passage. In the room at the end is a lift; pull the switch to the right to lower it. This goes up to a long room. Save your game first: this next part has ambiguous mechanics, and it's possible to use up a lot of health. Up in the room, when you move forward, barriers making a zigzag route to the other side will form, plus poison-dart traps will activate. It's impossible to avoid all of them, so just move quickly.
At the far end of the room you'll find the Swamp Key. The barriers will have reconfigured, forming three straight routes back across. One is to the right and has the poison darts; the other two now have fireballs shooting up from the floor in an oscillating pattern. Here's where the ambiguity is: only one route, picked at random, will actually lead across. If you take the other two, when you reach the other side you'll be teleported back to where the key was and have to deal with the traps all over again. It appears that the correct route is also re-randomized if you choose wrong. Taking a different route than before seems to be more successful than repeatedly retrying the same route, although from a purely statistical viewpoint it shouldn't matter. If you're losing too much health, just reload and try again. You could also use the Icon of the Defender you got in the second building, or just bail out altogether with the Chaos Device if things refuse to cooperate.
Horn Key side area[edit]
From the dining room, you can also get to the side area the Horn Key opens. Look carefully inside the other three fireplaces: one has a switch off to the side. (The fire in this one won't burn you.) Press it, and the back wall opens, beyond which is a long stairway leading up. At the top is a dropoff to the chasm; to the right is a pit against the wall that goes back down to the room outside the dining room; to the left is a door that needs the Horn Key. This is a revolving door that will spin when you activate it. In here is a loop route in a desert-like outdoor area, a couple overlooking areas, and a few dead-end passages with items. Look for and climb up the stairway on the inside of the loop route. Up here is a puzzle-piece lever, plus you can jump over to the outer overlooking area. The portal here goes to Wastelands.
Cave Key side area[edit]
Go to the courtyard in the castle and enter the door that needs the Cave Key. Pull the switch to your right to lower a lift to your left. At the top of the lift, you'll need to drop down to a muck-filled channel. Unfortunately this is just high enough that you'll unavoidably take exactly five points of damage from falling. Follow the foggy tunnel to where it branches. Your objective is to the right, but go left first. Up here is a doorway looking over the chasm outside the castle. When you step up to the edge, a very precarious-looking magic bridge of widely-spaced segments forms, leading steeply down across the chasm. Back down the tunnel, take the other passage down to a large cavern with four passages beyond. Three routes are impeded by deep pits; two are impassable now but if you come back here with the Wings of Wrath later and fly across, you'll see they dead-end just beyond the pits. Go the remaining way instead: you'll come to a portal that goes to the Caves of Circe, that you'll see is on the other side of one of the deep pits. Also along this passage are two statues. Nose around them: behind one you'll find this side area's puzzle-piece lever.
(The easiest way to exit this area is to take the portal to Caves of Circe, then take the nearby portal in that level back to Shadow Wood if you need to go there.)