Paladin Warden can be met in Prison. She is worried about the recent disappearances of prisoners.
Isbeil is behind that. You must speak with her. Go to Sewer. There are secret doors that are opened by pressing bricks in a wall. You can open them if you have at least 5 points in Thievery. If you don't have this much points then you can use a key that is inside of a room with spider webs near a Source pond.
When you enter the hideout, you will see the queen of Dwarves. You must fight Isbeil regardless of which dialog options you chose. However, you must be tortured first. It doesn't matter what you do because you won't receive any damage.
The most important thing to do is to get your party out from the hole first. It reduces range of your attacks and gives your enemies additional bonus to damage.
Win the fight and go to Isbeil's laboratory. It is hidden behind an illusory wall. There, you can find Isbeil's Research Notes which can serve as evidence of her guilt.
Take the documents and go back to Paladin Warden.
Reward: 96,950 experience points + 2 guaranteed rewards + 1 out of 4 to choose from depending on your character's class + gold