Using the Mysterious Key and exploring the basement is all part of the Phoenix Mirror in Shenmue, and comes swiftly after finding the Warehouse No 8 location.
Preparing to find the Phoenix Mirror
After you've found Warehouse No 8, you'll return home back in the Hazuku Residence. Find Ine-san somewhere in the house, and she'll tell you Fuku-san is looking for you. Head to the dojo for a few cutscenes, where you'll learn something has been left for you at an antiques shop.
The shop you're looking for is Bunkado Antiques in Dobutia. You can find it two doors down from the Tomato Convenience Store:
After the cutscene after speaking to the dealer inside, you'll receive the 'Sword Handguard'.
You may have noticed while you are in there the set of Move Scrolls on the left cabinet - purchasing these will give you new moves, and are well worth getting if you can afford it - especially Crawl Cyclone
Now you have the 'Sword Handguard', it's worth also heading to the Tomato Convenience Store to pick up a Flashlight and a Lightbulb - both of which will become apparent soon.
Head back to the Hazuki Residence. You'll be stopped in Sakuragoaka on the way back - don't worry about winning the right, it's all for story purposes. Once done, head to the house.
Fuku-san will say Ine-san is looking for you in the Altar Room. Head inside the Hazkui Residence, turn left, follow the left wall round the corridor until you come to a door to find it.
Afterwards, you'll need to find the 'Mysterious Key'. It's in Iwao's room - at the furthest end of the house, next to the Altar room. There's an optional cutscene by investigating the letter on the desk, while the 'Mysterious Key' is in the drawer.
You now have everything you need to find the Phoenix Mirror.
Where to use the Mysterious Key in Shenmue
Head into the dojo, making sure you have the Sword Handguard, Mysterious Key, a Flashlight and Light Bulb in your possession.
Directly opposite of where you enter, you'll see two hanging scrolls on the wall. Focus on the nail above the left one, and interact to take it off.
Now press the menu button (Y on Xbox and Dreamcast, or Triangle on PlayStation) and select the Sword Handguard. The menu here is a little fiddly, so you may have to investigate it with the action button, then close the menu button, but either way it should be placed inside the slot once you're done.
Now go to the right of the scrolls, where there is a long red box on the ground. Focus on the slot in the front, and do the same menu action again, this time with the Mysterious Key to open it.
Inside is a sword. Pick it up, and interact with the right wall scroll. Press the action button twice to place the sword inside, and open a secret passage in the wall. Climb down into the basement.
Where to find the Phoenix Mirror in the basement
Once you drop down, walk ahead to be told it's too dark to continue. Open up your inventory and select the Flashlight (this might take a couple of attempts - again, the menu system is a little clumsy).
Once it works, you can proceed into the basement proper. Remember the Light Bulb you picked up? If you focus on the light shade in the ceiling, you can select the Light Bulb from the menu and insert it.
Next, flick the switch - it's to the right of the doorway leading out - to turn it on.
If you don't have a Light Bulb, you can set Candles around the room in the various holders, and light them with Matches, if you have them in your inventory.
Before we get the Phoenix Mirror, there are various optional points of interest. In the south-west corner is a red box. Inside is a 'Photo of Father':
And there is another chest on the south wall. On top is a brown book - investigate it for a 'White Leaf'.
When you are ready, check the stack of shelves in the far left corner of the room. Focus on the floor to the left of it, to spot a trail of scratches, then press the action button. Investigating the shelves again and using the action button will see Ryo move them across.
The shelves were obscuring a panel at the foot of the wall. Investigate it, then look at the axe leaning up against the left of the doorway in this room. Return to the panel and investigate it again to knock it down.
Phoenix Mirror found!
After some more Shenmue tips? Our full Shenmue walkthrough will guide you through ever step of the main story, from the Three Blades, to where to find Charlie, Warehouse No 8 and where to use the Mysterious Key. And, of course, exactly where to find sailors. We also have pages on Shemue's various extracurricular activities, like feeding the kitten, winning forklift races, Shenmue flashback locations, a full Shenmue Trophy and Achievements and Capsule Toys lists, too. And, if you're playing the latest sequel, our Shenmue 3 walkthrough could be useful.
Once done, you have to call Master Chen. Go inside the Hazuki Residence, and use the phone on the right side of where you enter. If you forgot, the number is 0468-61-5647, with the same Father's Heaven puzzle to respond with.
Now head to the Harbour - you have to go to Dobuita, and catch the bus at the end of the high street - and go to the Old Warehouse District. Provided you've phoned ahead, the guard will let you in. Inside, you have to find your way to Warehouse No. 8 (if you forgot, it's right, left, right then the Warehouse is on the left).
During the cutscene, prepare for the following QTE prompt throughout:
After that, you'll return home. Sleep, and the next day you'll start your next task - getting a ticket to Hong Kong from travel agencies.