There is a medicine that can give form to a great soul. Consult the correct spirit. --Tablet in the Chamber of Extinction
The Medicine is an item acquired late in the game. It comes in three colors: yellow, red, and green. The Yellow Medicine is required to defeat the final boss. Additionally, all three kinds of medicine are also required to clear a room late in Hell Temple.
There are a number of items you must find before you can begin the process to make the medicine. First, make sure you defeat both Palenque and Baphomet to unlock the route, and Tiamat for the Magatama Jewel. Obtain the Container (to hold the medicine) left of the warp point in the Chamber of Birth and find the and the Woman Statue. Complete the steps required to reach the pyramid in the Temple of Moonlight and obtain the Ocarina. Finally, you'll want to speak with the four sages to learn the mantras BIRTH and DEATH, create a ladder in the Temple Tower of Ruin, and collect the Death Seal.
Summoning the Medicine Statue
Defeat the invisible enemy. Ye shall attain the medicine of life. --Tablet in the Tower of Ruin
From the Temple Tower of Ruin waypoint, go down to D-4 and attack the lower left wall to open a path to C-4. In C-4, use the Lamp of Time to freeze time. Kill two of the white enemies that appear. (Use Spear if you can't reach them otherwise.) Enter the passage that opens and put a weight on the pedestal.
Reaching the Medicine Statue
To reach the statue, you must pass through a number of areas. Start from the Chamber of Birth waypoint. Go left three screens and enter the doorway to reach the green part of the Chamber of Extinction.
Go right (there will be a sub-boss fight along the way). In the final room, attack the statue to make it move, and attack it again to freeze it and use it as a platform. Climb the ladder.
The ladder leads to a cut-off part of Inferno Cavern. Go left one screen and enter the door.
You are finally back in the Temple Tower of Ruin at F-1. To avoid taking the long route once again, you should collect the Wedge - descend the ladder (if you talked to the sage in Spring in the Sky) and put a weight on the pedestal, then defeat Nu Wa in the room to the left. While not required to cast birth or death, they are needed for the mantras.
Obtaining the Yellow Medicine
The mischievous Rusali. Yaksi, who beguiles men. Dakini, dancing enticingly. Only one of them has a pure heart. --Tablet in the Tower of the Goddess
To create the medicine, you need to find the three fairies in the rooms west of the statue, and use the Magatama Jewel to cast the spells. You must use the DEATH mantra to kill the false fairies (the ones in the first two rooms), and the BIRTH mantra at the true fairy (in the farthest room, where the Grail tablet is- actually a circling ring of fairies). To cast the mantra, simply stand in the room and type the word. Once all three fairies have been visited, return to the statue and stand under it to fill the Container.
Obtaining the Red and Green Medicines
In Hell Temple, you will need all three kinds of medicine to pass Room 32. On your first time through the temple, keep the Yellow Medicine with you. Bring it to the room and summon the yellow block.
Return to the sage to reset the medicine. Go through the medicine quest again, but this time cast DEATH on the fairy ring and BIRTH on one of the first two fairies. This will create either the Red or Green Medicine. Go through Hell Temple again to use the second medicine, then repeat the process again to get the third medicine. Remember that instead of taking the long route, you can now just enter the Temple Tower of Ruin from the Tower of the Goddess B-7 (two screens down from the Grail tablet).