According to the story, the Magic Mirror is said to have swindled from the King by a sorcerer promising fertility to the King's wife, many years before Graham's adventure begins. It is said to be guarded by one of the sorcerer's beasts, but there is no other information about it's location.
The mirror is being guarded—by a large green fire breathing Dragon. The Dragon sleeps in a cave that is sealed by a large boulder blockading the door. You can go into the Dragon's cave and find this bolder by venturing into the cave opening in E4. You will not, however, be able to reach the Dragon's Lair from this entrance.
Before going after the Magic Mirror, you should first collect as many of the items around Daventry as you can get. You don't need them all to get the Mirror, but it's not a bad idea to have everything you need right from the beginning. You should have at least these items before you attempt to retrieve the Magic Mirror:
- Dagger
- Bucket (which you can get on the way)
- Magic Ring
Step 1: Get the Bucket

Once you have these items, proceed to the well in F5. If you brought the dagger, you can get the bucket by using the dagger on the rope around the bucket.
Step 2: Lower the rope into the well

Before you can proceed down the well, you must lower the rope into the well. This can be done by using an action on the handle.
Step 3: Climb down into the well

After the rope has been lowered into the well, use an action on the dangling rope to climb into the well.
Step 4: Jump into the water

Once inside the well, Graham will move to the end of the rope. Use an action on the water and Graham will jump in.
Step 5: Dive into the water

Once in the water, use an action on the water again to dive. You will end up in a cavernous area. The chest on the ground has nothing of value in it.
Step 6: Move Graham to the open area of the in the upper left corner

Make Graham swim to the upper left corer of the cavern (marked by the location of the walk icon in the image to the right).
Step 7: Get Graham out of the water

Get Graham out of the water by using an action the shore.
Step 8: Fill bucket with water

Fill the bucket from the well with water by using the bucket on the water.
Step 9: Enter the Dragon's Lair

Walk to the left into the Dragon's Lair. You will find the Magic Mirror next to the sleeping Dragon. It is not advised to wake the Dragon—he's a little cranky.
Step 10: Throw the bucket of water at the Dragon

Throw your bucket of water at the Dragon by using the bucket on him. The Dragon will wake up as you do this and the water will hit him in the face. He will cough a lot and surround himself in a cloud of smoke. After that, he will exit the room, leaving behind the mirror.
Step 11: Pick up the Magic Mirror

Once the Dragon has left, you can pick up the mirror.
Step 12: Exit the Dragon's Lair

Once you have the mirror, you can exit though the door the Dragon opened up. This door will take you to the cave you could enter though E4.