Dreadfell is a zone on the southern shore of Maj'Eyal, west of Last Hope. It has a "dungeon" layout, with darkened corridors connecting rooms that are randomly dark or lit. It is inhabited primarily by undead.
Dreadfell becomes a quest (The Island of Dread) when the four second-tier zones have been finished. However, Dreadfell is accessible from the beginning of the game; the quest's activation is not necessary.
Dreadfell's boss is The Master, a necromancer with aspirations for world conquest (yes, that's redundant). He has possession of the Staff of Absorption, an artifact of enormous power. Dreadfell, and the recovery of the Staff of Absorption, is the first part of the main plot.