As soon as you start, dive down and follow the cavern to the right. Swim up when you see the clear water above to find two chests containing a Phoenix Feather and a Gorgon Eye.
Grotto Cavern Gorgon Eye and Phoenix Feather
Dive to the water again and follow the straightforward cavern this time until you reach a ledge. Climb up and defeat the enemies in the area then use the amulet to decay the chains near the ledge to open the massive gate.
Jump to the water again and follow the underwater cavern until you reach the part where it splits to the upper and lower paths. Take the lower path and follow it until you find a glowing object on the ocean floor. Pick it up to obtain a treasure. (Boat Captain's Idol)
Grotto Underwater Treasure
Continue forth until you reach the end of the path where you can swim up. Collect the red orbs and open the health/magic chest then proceed through the narrow crevice and follow the tunnel to reach the harbor.
You can destroy various objects here to gain extra red orbs. In the right side of the harbor lies two red chests so go there first. Continue to the left and you should see the two white chests in the corner. Go there to obtain a Phoenix Feather and Gorgon Eye. Now board the ship for a scene and to end the chapter.
Kirra Harbor Gorgon Eye and Phoenix Feather