A treasure chamber is unearthed beneath Camelot, the centre-piece being a glowing blue stone in the sarcophagus lid of Cornelius Sigan. Decades earlier, Sigan was executed for sorcery and died vowing revenge. Greedy Cedric, hearing only of the treasure, comes to Camelot. Learning that Arthur has the one key to the vault, he worms his way into the dim young prince's confidence and steals it, looting the chamber and prying away the stone (which is actually Sigan's wicked soul). Consequently possessed by Sigan's spirit, Cedric takes on his magic powers and animates the castle gargoyles, which terrorize the city. In return for a promise to one day set him free, Merlin acquires extra powers from the Great Dragon and does battle with Cedric, saving Camelot once again. Given what has happened, Uther is more convinced than before that magic is only evil.

Merlin finds a secret chamber and accidentally releases a Goblin, which wreaks havoc.