The shinbone is found occasionally in the fireplace of Leoric's Manor. Open the door and descend to Cathedral Level 1. Travel from the New Tristram waypoint to the Cathedral Garden, and then walk out the gate and back around to the front of the Cathedral. If you're past this point in the story, go to Act 1, Mission 4: Reign of the Black King. The room it spawns in always looks the same so you can look for it in the minimap. When you enter the room, your hero will remark about the unusual mushrooms. The mushroom in a patch of mushrooms that occasionally spawn on level 1 of the Cathedral (screenshot). Unlocking Whimsyshire requires a Staff of Herding, which can be crafted at the blacksmith for 50,000 gold and requires the following items: In order to visit Whimsyshire, you must craft a Staff of Herding, and take it to a specific area in Act 1. Otherwise, it's probably likely to be underwhelming. It may be worth visiting/farming if you've cleared the difficulty you're on, but are having trouble with the first act of the next difficulty.

Level-wise, it contains monsters and loot that are roughly on par with the first act of Nightmare (if you're visiting the Normal variant - I assume that it is roughly on par with the first act of the difficulty one harder than the difficulty you enter the portal in) - nothing super difficult or super awesome. Just like these random dungeons, it has chests and other lootable objects, plus a plethora of monsters, including some champion and unique monsters. Whimsyshire is essentially a single-level dungeon, much like the dungeons you find randomly while exploring the wilderness.

According to sources on the Blizzard forum, the secret level is called Whimsyshire:

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