Welcome to Fairygrounds, the place where Drippy came from! Drippy gets taken away, so you're free to explore the town. There's not much to do here now, although you can buy a few new items at the Cawtermaster shop. When you're done, head towards the opening to see a scene with the Fairy Godmother and Drippy.
It seems she wants you to help her get some of the fairies who haven't come out yet, but the only way to do this is to make her laugh. Head back into town and to the Cavity Club, where you see the two faeries bomb with their act. It seems that they're missing 8 pieces of art, similar to how humans miss a piece of their heart. All 8 pieces require you to cast a spell, so make sure you have enough MP to do so. They are as follows
- Little guy on counter in southeast corner - Broom Broom
- Little guy walking around doing homework - Quicken Growth
- Guy with hair in southwest corner - Levitate (need to get spell from seagull nearby)
- Innkeeper - Fireball
- Fairy with red pants just northeast of inn - Secret Ingredient
- Hootique - Rejuvenate
- Blue and white outfit in northwest corner - Spring Lock
- Cawtermaster - Burden
Head back to Smiley and Surly, giving them the pieces of art, then talk to them again when you're ready to go inside Mummy Tummy.