The Haunted Grounds is the second level in the Dream World. It is also the location of the Lantern of Revelation used in fighting the Shadow Wraith at the end of the realm. The player travels through the twisted, winding path of a graveyard infested with Imps and Crawling Claws. Throughout the graveyard there are statues of various hero's, impaled upon spears.

At the very end of the level, the player reaches the entrance to the Haunted House, the next level in the realm. By exploring the front of the house, the player discovers a series of switches allowing them onto the house's balcony. There, the Lantern of Revelation can be acquired.

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