Terra arrives in Neverland, where he finds Captain Hook and Smee under attack by Unversed. After saving them, he overhears Hook say something about light, which piques his interest. Hook decides to manipulate Terra ans use him for his own ends. He tells Terra that his treasure chest contains light and that Peter Pan is trying to steal it. Terra agrees to help him take the chest back to his hideout in Skull Rock. Once there, Smee tells Hook about a sparkling object that fell from the sky, saying that it might be a valuable treasure. Hook orders Terra to guard the chest while he and Smee go to retrieve the object.
Soon, Peter Pan and the Lost Boys arrive at Skull Rock. Terra fights him for a bit, but when the Lost Boys try to steal the chest, they trip and cause the chest to open, revealing that it was just pirate treasure. Terra realizes that Hook was fooling him and decides to join forces with Pan. While he goes to find Hook, a huge swarm of Unversed attacks the Lost Boys. Terra manages to destroy them and save the boys.
Shortly afterwards, Hook returns. He reveals that the "object" he captured was actually Tinker Bell. Terra asks to see the lantern she's being held in, and he frees her while Hook is distracted. Terra and Hook prepare to fight, but the pirate captain is scared away by the arrival of the crocodile that stole his hand. Tinker Bell flies around, spreading pixie dust around the cave, which reminds Terra of when he told his friends about the stars being other worlds. The Lost Boys are disappointed that the treasure has disappeared, so he tells them to put something special in there. Terra begins wondering what he would put in the chest if it was his. Having finished his job in Neverland, Terra leaves to continue his search for Vanitas...
