Move along the waterway to the next with the sign in front of it. The path is supposedly closed off by bars. Use Trinity to open up a new path. Go through it and you'll find yourself in the Secret Waterway. Swim to land, where Leon will be training alongside Aerith. Talk to Leon and he'll tell you about Keyholes. Talk to Leon a second time and Sora will ask him about the strange gummi block the group found in Deep Jungle. Aerith suggests asking Cid, and you will then be given Earthshine. You can now leave the area. Your next move should be to go to Cid's Accessory Shop in the first district.
Enter the Accessory Shop and talk to Cid inside. He'll tell you about navigation gummis. With navigation gummis, you can travel to new worlds. Cid says he can install it in the Gummi Ship, but he needs a favor. You will now receive an Old Book to deliver to the "old house past the third district" and to "look for a fire sign".
After entering, go down the stairs and look to the left for a door with a fire symbol on it. Lock on and use Fire. The passage to the Mystical House will now be open. Jump across the stones floating on the water to get to the house. Enter through the entrance on the left, the Empty Room. After a short scene in which Sora once again sees Kairi, a sorcerer will enter the room and introduce himself to the trio as Merlin. Afterward, talk to Merlin again to give him the book. He'll tell you that the book holds a great secret, and the missing pages will unlock it. He also tells you to talk to the Fairy Godmother about the Earthshine stone. You should now be able to summon Simba. This is also where you can access the 100 Acre Wood world. You can now leave the house and go back to the third district. After a cutscene in which Sora is reunited with Riku, go up the stairs and to the Small House, where Cid and Leon are waiting for you. After another cutscene, Cid will tell you he installed the navigation gummi and a warp gummi as well. This will allow you to warp to worlds you've already been to before.
Guard and Opposite Armor
Cid, Leon, Aerith, and Yuffie will then send you to the bell in the second district. After entering the second district, go up the stairs and enter the Gizmo Shop. Exit through the doors on the other side. From the outside, a ladder will be set up next to the doors you came from. Climb it and you'll make it onto the roof, where you'll be attacked by more Heartless. After you defeat them, go to the back (away from the ledge) where there will be a Trinity. Use it to open the way to the bell. Pull on the rope to ring the bell. Keep pulling the rope until you reach the right side in the middle of the fountain. After seeing a Keyhole, jump down and you'll be attacked by a returning Guard Armor.
After Guard Armor's HP reaches a certain point, it will collapse and rearrange its body parts to transform into a more powerful version of itself: Opposite Armor.
After finishing the battles and locking Traverse Town, go back to the First District and talk to Cid, who's behind the Item Shop. He'll give you Comet-G. You can now leave Traverse Town and move on to the next world.