This is done at the mind flayer in Chiiron Caves.
Directions to Mind Flayer:
From outside the north gate of chiion > go all north > one east > “ent cre” > one west > all north > “twi tor” > all north again > “cli dow” (will be some bats) > “jump down” (will be some crocodiles) > for all north (ya there!)
Ask mind disb
You ask a mind flayer about illusions and magic.
A booming voice fills your mind: " Fool. Do you really seek to master the magics of the mind? Very well, bring me an emerald whose surface gleams with the froth of the sea. I can use it in my studies. If you do that, I will teach you about illusions and how to disbelieve in them!"
The mind flayer is referring to a sea green emerald. Fortunately one pops 100% of the time off the wraith in the Silent Pines (refer to Hills of Pennan area above for details).
You give a sea green emerald to a mind flayer.
The mind flayer accepts the sea green emerald with much greed.
A booming voice fills your mind:
"Very well. You have upheld your end of the bargain and now I shall uphold mine. Illusionary magic gathers its strength from ignorance and the weak of mind. In order to defeat it, you must bring your will down upon the illusion to disbelieve it. "
** ** You have been taught the ability to disbelieve. ** **
Pro tip: If you are strong enough, you can kill the mind flayer and get your emerald back.