REWARDS - 2,500 Gold, 2,000 EXP, 5 Rift Crystals
Talk to Mercedes outside of the main tent in the Encampment and agree to rest to start this quest. When you wake up, you find a Hydra is attacking the Encampment. The goal here is to inflict enough damage on it in order for one of its head to come off. There are a few ways to do this, though.
If you're playing a ranged character, like a Strider or a Mage, then sit back and hit it with a bow or magick. If you're playing a melee character, then try and jump on it, attacking one of its heads, as that is where it is weak. Should you take too long, though, Mercedes will give you an explosive barrel to throw at the Hydra. It will swallow it and you'll need to hit the spot in its neck to instantly finish the battle.
You will talk with Mercedes after the battle, mentioning that you should bring the hydra's head to the capital. If you agree to go with her, then Off With Its Head will automatically begin. If you refuse, you're free to explore and do other quests, although you still get the reward from finishing this quest.