Your party can not undertake this quest until Act 1, Chapter 3, The Morden Towers, has been completed. You can actually initiate this quest without first talking to Laenne, just by visiting the Elven Shrine and retrieving the Sapphire. However for completeness, head south from the Eirulan teleporter past the tramway for the Great Hall, Infirmary to the Pet Shop, South Gate tramway. Head across to the Pet Shop and proceed southwest keeping close to the Pet Shop and follow the board walk around the building as it moves up toward the top. Once at the top, you find the entrance to Laenne's house. Open the door, enter her house and speak to her. She'll tell your party about the Lost Sapphire of the Elves in a hidden chamber in the Elven Shrine at the far end of the Western Greilyn Jungle. Choose either the first or second response to accept to find the Lost Sapphire of the Elves and initiate this quest.

Return to the Eirulan teleporter and head for the Western Greilyn Jungle teleporter. There's a nearby sign pointing to the Elven Shrine, so head in that direction (i.e. south). Continue through the Dryad Outpost and follow the path in the direction pointed to by the next sign pointing to the Elven Shrine (i.e. southeast). Follow the path as it winds around and up three hills to the Elven Shrine. Turn east and walk down the short ramp and open the door (if your party hasn't previously entered) into An Elven Shrine and head on in. Turn to the south and proceed through the door to the west. Continue down the corridor until they encounter double doors to the north. Go through either one to find the elevator, which can take them down the area below. Move your party onto the elevator and acitvate the lever to descend. Be ready for the reception party waiting below. Once your party has taken the lift down, there's a switch to the southwest to open the secret area, which is accessible while they're still standing on the platform. Activate it and a door opens in the west wall allowing access to the room (A Hidden Elven Vault) behind it.

Enter and pick up a Green Life Cube. Place it on the nearby Green Life Cube Socket. Now stand on the swirly pattern to the south and activate the nearby switch to the north to send the elevator downward. Press the button in the wall to the north to open another secret area.

Pick up two of the Yellow Sight Cubes from the pile along the west wall. Enter the newly opened room and pick up two Red Blindness Cubes, then place a Yellow Sight Cube in the nearby yellow socket to uncover the switch in the adjoining room. Return to the prior room and stand on the southern of the two swirly areas and activate the switch to the north to send that elevator down to the 3rd level. Press the button on the east wall to open a hidden door to the south, allowing access to the Red Blindness Socket. Enter this new area and place a Red Blindness Cube on the Red Blindness Cube Socket. Pick up two Purple Death Cubes from the nearby pile and return to the previous room. Place a Purple Death Cube in the Purple Death Cube Socket to open up a secret area to the north.

Enter this new area and walk around the corner. Place a yellow sight cube in the Yellow Sight Cube Socket, which is farthest to the east, to raise the final elevator switch just west of them and activate the Red Blindness Cube Socket just to the west of the switch. Walk west to the Red Blindness Cube Socket and place a Red Blindness Cube in it to open the cover on the central purple socket. Turn around and place a Purple Death Cube on it, to unlock the nearby elevator switch. Activate the elevator switch and they'll step on the elevator and ride it back up to the final room on the first level. When they loot the shelves in the southeast corner of the room, a doorway to the south is opened, granting them egress back into the original area. Continue looting the room of three lesser chants (Ranger, Mage, and Fighter Power), some gold, and the Lost Sapphire of the Elves.

Exit through the door to the south and issue a Summon Teleporter spell to return to Eirulan and go speak again with Laenne, who now has an orange question mark icon above her head, in her place atop the Pet Shop to give her the sapphire and receive your reward of several useful items plus gold, which completes this quest.