Demons of the Deep is an attraction an Captain's Cove Amusement Park.
Before Demons of the Deep was converted to a haunted house in the winter of 1961-1962, the building was originally a ballroom. Underneath the ballroom/haunted house, Rolfe Kessler had a workshop where he carved his disturbingly-realistic carousel horses. Information about the transformation and photos can be found inside of Joy's office.
When Nancy is asked to investigate the theft of a valuable carousel horse, she explores the haunted house in the course of her investigation. Stepping inside, she can hear noises, as if something or someone was beneath the floor.
One of Miles the Magnificent Memory Machine's clues involves the mechanical monster in the center of the main room, but it must be repaired before Nancy can complete Miles's instructions. Once it's running again, Nancy must place the ring that can be snatched during the carousel ride around its arm. This opens up a hidden staircase leading to Joy's favorite carousel horse as a child, Glory. It also leads to Rolfe Kessler's workshop, where Nancy finds copies of the stolen carousel horse and evidence pointing to who the culprit is.
As Nancy runs away from the culprit, she can take the ring off the monster's arm and cause the culprit to fall back into the hidden staircase.