Dreams of Yesterday

You have to find your way ALLL the way up north, to where you can find a cliff. From there, start heading downward. ... Hm. Essentially, try to find Level One again, (Though it's only an intro level, not even level one. Level "one" is a dream. All the levels are dreams. The stuff you do outside of dreams are just side quests.) So find that place where you got the sword, but don't climb any ladders up cliffs yet. Head WEST, instead of East, and follow along the cliff areas. ... ... Er ... Basically, don't wander from the forest into the mushroom area. Go from as far north as you can go, THEN try to find your way to it. I think the entrance is south of the screen where you can bomb a piece of the cliff, and it has a pair of platforms to use the raft equivalent on. Good luck.

And in there, don't forget to look for whiter sections of walls that you can bomb. You might find yourself a bit short on keys otherwise. 😉

So level 2 is in the forest, east of the place where the mushrooms are, and near where "level 1" was? (in the dream)