Look for a tunnel to the east that leads to an area filled with red digestive fluids. Jump onto one of the pedestals that's not filled with the red fluid and use Waterspout to attack the fleshy blob in the ceiling with the digestive liquid. A few squirts will dissolve the fleshy blob, filling the area with the red fluid. Create a Water Lily with your brush and hop on it. Use Galestorm to blow you and the lily back towards the trapped Dragon Orb where you can use Waterspout to attack the flesh that's holding the treasure in place.
After grabbing the Dragon Orb, a pack of Tube Fox enemies appears. These guys are pretty tough, but it's important to remain aggressive, attack rapidly with a Rosary, jumping attacks work well. If you see them start to suck Amaterasu's ink, hit them with a quick Power Slash. Also be quick to use a Reflector defensively to intercept the enemies' projectiles. Though they only attack three at a time, there are nearly a dozen enemies to fight off before earning the Fox Rods.You have to make a mad dash to exit the Water Dragon's stomach as acid drips down. Move the camera upwards so that you can see the shadows on the ground that mark where the acid drops will hit. Make your way to the end and, after a long cutscene, you will find yourself back in the Dragon Palace. Go back to Otohime to return the Dragon Orb, then leave the palace and return to North Ryoshima Coast.