Make sure you've done everything else you want to, then talk to King Reynard. He'll give you your final quest. When you leave the castle, the town will be mostly deserted; you can still change your party at the Lackdack, and you may still be able to use the arms shop (Gregor will leave if you talk to him, so don't).
Head to the Holy Sophia Temple. Climb down the well under the cliff, and then go round and enter the temple.
The final battle against King Daruk begins. He has two physical attacks: one will hit your whole party anywhere on the screen for a significant amount of damage. He also uses magic a lot, particularly Black Rain. It's not actually that hard - if you're at a high level, spent lots of money on stat increases, have the best weapons and armour you can find, and are well supplied with potions and so on, that is.
This battle is noticeably easier if you've completed the Sealed Labyrinth and collected King Daruk's Heart. It seems to decrease the number of offensive spells he casts and increase the probability that his attacks will miss completely, and it may also decrease his defence.