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When Link first enters the Mysterious Woods after obtaining the sword, the Owl greets him and tells him about the key needed to enter the Tail Cave. The key is located within the Mysterious Woods, and must be obtained to progress in the game. A raccoon blocks the way to the Tail Key, by somehow misleading Link to a similar looking area of the forest. The creature can only be bypassed by using Magic Powder, obtained from the witch, Syrup.
Aside from the Tail Key, another important item for Link to obtain in the Mysterious Woods is the Sleepy Toadstool. To get the Mushroom, Link has to go through a cave on the eastern side of the Woods. On the opposite side of the cave is a small grotto where the Mushroom is located and obtained.