After you go through a cave with Dodos and Boneheads, you emerge into the second overworld area of chapter 3.

Visit Miracola

Go north and you will reach the town of Miracola. Talk to everyone in town except the northeast guard. The guard at the big hut won't let you in if you haven't talked to everybody. To reach the guard, go east to the small hut, then use the south exit of the hut. Go south across the bridge, then go west and you will find the guard. If you talked to everybody in town, the guard will let you through.

In the big hut, talk to the man to the north. There will be a cutscene.

You have to visit Bananette before you can continue, so exit the chief's hut and go east, cross the bridge, go into the small hut, and go out through the hut's west exit. Go to the north wall of the big hut and walk through the hut wall. The entrance is directly south of the entrance to the old woman's house to the north. Go up the stairs, talk to the guard, then you can optionally talk to the woman beside the bed, and finally, check on Bananette, who is in the bed.

Go back downstairs, go north to go outside, then go east, and finally go to the northeast part of the village, where there is a guard. Talk to him and he will step aside if you have visited Bananette. Go through the exit to leave the village.

Then go east and enter the second cave of chapter 3.