Instructions
Leave the city of Leyawiin through the northeast gate and head north.
Continue traveling north past Veyond and Blankenmarch until you see a dirt path on your right. Take this dirt path to reach the Shrine of Nocturnal, a small forest clearing with a large statue of a hooded woman with her arms spread and two birds perched on them. The game tells you that "You found Nocturnal Shrine" when you approach.
Approach the statue and press the Activate key (the space bar by default) to obtain a quest to recover the Eye of Nocturnal from two thieves. After a small event with a few lines of dialogue, the quest is added to your journal.
Travel back to Leyawiin and speak with people in the city to discover the location of the two thieves. Guards are likely to be the most helpful if you choose the "Leyawiin" topic of conversation.
Walk to the thieves' house, enter it and speak with them. The location of it is marked on your map. Speaking with the thieves about the Eye of Nocturnal gives you a quest update that requires you to eavesdrop on them to find where they hid it.
Hide in a corner of the house to eavesdrop on the thieves. Staying in one of the corners near the house's entrance is sufficient. Your journal updates after you do this successfully.
Travel south out of Leyawiin to Tidewater Cave, which is marked on your map.
Enter Tidewater Cave and turn left at the first intersection.
Continue moving through the cave, turning left every time you reach a dead end. After two left turns, the path ends in deep water.
Dive into the water and swim forward through an archway to retrieve the Eye of Nocturnal. It has a very bright and obvious red and green glow to help you locate it underwater.
Return to the Shrine of Nocturnal, walk up to the statue and press the Activate key. After a few lines of dialogue, you receive the Skeleton Key.