When the party is first washed onto the island, they are weakened, having only 1 HP and no PP. They decide they must look for food, and soon after they come across some Hallucination Mushrooms. Everyone in the party, with the exception of Boney, eat the mushrooms and start hallucinating. The mushrooms cause everyone except Boney to think that enemies on the field are people that they know, such as Flint, Claus, and the employees of Club Titiboo, including Kumatora's alter ego, Violet. One of the first enemies which can be encountered is the Zombieshroom, which they believe to be Flint.
Many of the hallucinations in Tanetane Island turn out to be menacing. One hallucination of Claus says "Everyone's waiting for you. Everyone's waiting to throw rocks at you, spit on you, and make your life hell. Who's everyone? Everyone you love." Another image of Flint says "I'm gonna beat you, boy. Daddy's gonna beat you."
When the party enters combat with any enemy on the island, all they see is an Eerie Smile, much like the Squatter Demon of EarthBound. Whenever the party approaches or is near an enemy, Boney will start growling, signifying that they are near a foe. The party even sees the Item Guy, who runs his traveling caravan, as an old man with a caravan.
Once the party reaches Mixolydia's home, they see the Mole Cricket shop as a lotus root. They also see Ocho as a male sailor instead of an octopus, and Mixolydia as a regular woman, until she hits them each, including Boney, on the back of the head with a 2x4 in order to knock them back to their senses. After that, she opens the gate leading to the fifth Needle.
Along the path, there is what appears to be a beautifully decorated hot spring that Boney refuses to enter, with a mirror beside it. After the hallucination ends, returning there reveals what once appeared as a hot spring is actually a pool of sludge and that the mirror is a door to the real hot spring. The pool of sludge can still be entered, but will have no effect, and Boney will still refuse to enter. The Old Man and Hot Spring Woman still appear in the pool during the hallucination as Fassad and Ionia, respectively, although their reason for bathing in a pool of sludge is unknown.
The party ventures through the area behind the gate, all the while fighting nothing but Unwelcome Gusts, until they finally reach the Needle, and its guardians, the Barrier Trio. After a long, drawn-out fight with the trio, Lucas finally has an opportunity to pull the Needle. Unfortunately, before he can, the Pigmask Army comes in, and the Masked Man zaps Lucas and his friends with a lightning bolt. Before the party can recover from being zapped, the Masked Man pulls the needle and flies off with the rest of the army.
Mixolydia then comes to the party, and gives Lucas her memento and a Jar of Yummy Pickles for Ionia, the next Magypsy they will meet. She then disappears, and the party makes their way back to her house, where Ocho decides to give them a ride back to Tazmily Village. They go to the shore of Tazmily's beach, where they started their sea floor dungeon walk.
- The Zombieshroom can be encountered normally prior to eating the mushrooms. However, the party will be in no state to survive the fight, and will be defeated on the first turn, though this is the only way to get the Zombieshroom's Battle Memory entry without cheating. It is also impossible to raise the party's HP or PP through cheats as well.
- The EarthBound equivalents of Tanetane Island is said to be Deep Darkness and Moonside. This is because of the former's marshy areas and the fact that it is also only accessible by water, whereas the latter is also based on hallucinations and colored differently from what it should be. Tanetane Island, when viewed under the effects of the Hallucination Mushrooms, may also serve as an anti-Magicant (specifically in reference to its EarthBound incarnation), as both areas do reflect the thoughts of the residents, though Magicant is more lighthearted and mostly focuses on Ness's happy memories, while Tanetane Island focuses on Lucas's negative emotions and tragic memories.
- The word Tane means seed in Japanese. This might be referring to the island's abundance of fauna.