The Dragon lurks in a lair beneath the castle, where it jealously guards the Dragon's Treasure, which the Knight needs as proof of his chivalrous bravery. Judging by the name on its food bowl (Filled with the charred remains of previous knights proving their chivalrous bravery) its name is presumably Stud. It will kill any spelunker that gets within range using a powerful blast of fire breath. Fortunately, this allows the Knight to use his ability to distract it from the front whilst a team mate retrieves the treasure from behind. Unfortunately, once its treasure is stolen, it escapes its lair (The Knight having forgotten to lock the gate after retrieving the treasure) and proceeds on a rampage, killing all the guards in the Castle and eating the Princess, only returning later to devour The King.
The Dragon is based on the mighty purple beast seen in The Knight's memories (Via Cave Paintings), although the two dragons don't look quite alike. In the real world, the Knight has been asked by the King to slay it with Excalibur. Depending on the choice the Knight invariably makes during his journey through The Cave, he either accepts the request and fails, allowing the dragon to burn the entire kingdom and everyone inside to the ground (The Knight burning along with them), or he reveals his true identity, and joins the King and his soldiers in a much more promising fight against the beast.
- There was a minor oversight made by the developers of the game in that, through using The Monk or The Time Traveller, it's possible to acquire the Dragon's Treasure without even opening the gate to the beast's lair. The Dragon's subsequent rampage will still occur, but it doesn't really make as much sense.