You will find that the entrance to
Phoenix Mountain is blocked by an aspiring Dwarf actor. He will need to see you laugh and cry before he will leave his post to go practice.
Proceed to your left over the gray rocky structure and enter the
Mushroom Forest. (Alice in Wonderland much?) Soon thereafter you will see 2 mushrooms (Shown below). The
Purple Mushroom will make you laugh and smile. The
Orange Mushroom will make you cry. Be careful when eating the mushrooms because Tomba will be unable to use his attack when he is on mushrooms. Laughter isn't much of a problem, but when you are crying Tomba will stumble forward a few steps, so try not to fall off a ledge.

The first set of mushrooms you encounter will be all you need, but feel free to explore more once you are finished. Note that depending on whether or not the flowers are laughing or crying will affect the terrain's height.
You will eventually see a
Pale Brown/Off White Colored Mushroom (seen below), this is a
Healing Mushroom and will relieve you of any of your previous mushroom symptoms and enable you to use your weapon again.

Proceed onto
Phoenix Mountain and listen to the Dwarf Elder again. Travel across the mountain, while minding the wind, to eventually encounter the
Phoenix.

After a short FMV, The
Phoenix will drop you into
Baccus Village.