If you go to the Five Flagons Inn in the Bridge District and go downstairs, you see a silly play, after which you may talk to the playmaster (Raena Shai) and she asks you to retrieve Haer'Dalis and his gem. You can find both of them in the Sewers, in a secret area east of the entrance to the Cult of the Eyeless.

Inside, you'll find the wizard, who will blame Haer'Dalis for thievery (seems like it wasn't HIS gem after all :-) ). Slay the wizard and Haer'Dalis will appear, asking to join your party. Either way you choose, you can fetch the gem by going to the room to the east, after fighting a pack of monsters (either Umber Hulks or Salamanders). Fetch the gem and go back to Raena Shai.

After retrieving the gem you can go to a short interdimensional adventure, which is thoroughly covered in our walkthrough.

Here's a bug on this area - if you fetch the gem and then reform party and remove Haer'Dalis before starting the second part of the quest, you'll lose the gem and the quest (when you go back to the Inn the playhouse is empty).