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Background
You'll trigger this quest by reading the note "Contract: Dragon" on the notice board in Fyresdal in
Ard Skellig (#1).
Walkthrough
The note will let you know that a dragon has been plaguing the lands around Fyresdal. To learn more about it, you'll need to talk to Vagn, Fyresdal's village elder. You'll find him in front of his house. Vagn won't know much about the dragon, but he'll inform you that it recently killed two brothers, and that you're welcome to examine their bodies.
You'll find the two corpses in a house on the western side of the village, but before you can examine them, you'll have to talk to their mother Karli. She'll tell you that her sons were killed in a glade to the north, and she'll give you permission to study their wounds. You'll find teeth and claw marks, but no evidence of fire.
To track down the dragon, you'll need to examine a cow that it killed north of the village (#2). You'll notice that the dragon wasn't strong enough to lift the cow, and you'll detect a trail of blood leading away from the body. The blood will take you to a ruined watchtower to the north (#3). Next to it you'll find the corpse of a dog, which was apparently dropped from a great height. You'll then spot the nest of the creature -- a forktail, not a dragon -- at the top of the watchtower, and you'll decide that you'll need some bait to catch it. This sequence will earn you 25 xp.
To get some bait, you'll need to return to Vagn. He'll let you have a sheep named Mia, which you'll then have to guide to the watchtower. To "steer" the sheep, you'll need to walk behind it. If you walk to the left of the sheep, then it will head right. If you walk to the right of the sheep, then it will head left. You can also cast Axii on the sheep, which will cause it to follow you. When you eventually get the sheep to the watchtower, the forktail will appear and attack you -- both you and the sheep -- but if you're quick and use Aard on it, then you can knock it down and distract it while the sheep runs away.
The forktail will fly around but only use melee attacks on you. So dodge in, attack it a couple of times, and dodge away, and then repeat as necessary until it's dead. When the forktail dies, it'll drop a
Forktail Trophy, a
Forktail Mutagen, a leveled version of the steel sword Dancer, and more.
When you return to Vagn, you'll have to make a decision. If you lie and say that the creature was a dragon, then Vagn will pay you your negotiated fee. But if you tell the truth and say that it was a forktail, then he'll only pay you half your fee. Either way, you'll also earn 350 xp for completing the quest.
1 - Fyresdal
2 - Dead Cow
3 - Ruined Watchtower / Nest