Required:
Completed puzzle 1
Level 1 construction technology
Level 1 crafting technology
Solution:
Drag a villager to the crafting hut and select oil so they take it to the statue of the Kraken. Now drag another villager to the crafting hut and select fire so they use it to light the oil. You now need to find the eyes of the Kraken statue. The first eye can be found amongst the reeds to the left of the tree at the bottom right of the island. The second eye is found beneath the lab and to the right where the lava connects with the lab. Before you can collect the eye you will have to go to the crafting hut to get water to cool it down.
Drag a villager to the Kraken statue so they repair the eyes. Once this has been done 2 large stones at the centre of the island will fall. You now need villagers to push the rocks at the same time so they fall. When you have done this the Kraken will appear