After getting Whisper's Love, a Rumrom called the Haunted Stone can be found in the Haunted House cellar. Its description refers to flying the Rocket to the Moon, but it's engraved with pictures of four arches leading up towards the Dragon. This depicts a cut area called "Dragon's Tail" that would have been used in a dream sequence triggered by Florence in the middle of the game, and revisited in a cut ending by reflecting two mirrors at a gate to create a tunnel to it. The area can be accessed through the debug menu, and was not removed before release as the developers never expected players to find it. They considered adding it to the 2019 re-release in either a reworked form or as a DLC ending, but decided against it.

Designer Yoshiro Kimura and artist Kazuyuki Kurashima envisioned it as a purgatory where souls from real life and the game world meet before going to Heaven or Hell. It was inspired by books Kimura read that made him feel there were "other layers to humanity than what we normally experience in reality", as well as a one-man stage play he put on while working at Squaresoft called "Mononoke", about a bullied boy who enters a similar purgatory. Dragon's Tail was cut when Kimura designed the Monster Catch system and thought the ideas that came from it were more interesting and fitting with the game's themes, and because he found the area too similar to a chapter from the Osamu Tezuka manga "Phoenix". He recalled this as a stressful change as all the assets for the new ending had to be built out of clay and then imported into the game.

Dragon's Tail adds more backstory to a minor item in the final game called the White-Feathered Arrow. By interacting with Bilby, the Minister, and two papers in his bedroom, it's learned that this item Spoiler:was shot in the air as a ritual to randomly select a citizen to seal inside the cursed armor of the Hero and slay the Dragon. That person will endlessly chase and fight monsters until they die of old age. Since the game parodies contemporary RPGs like Dragon Quest, it's theorized that the White-Feathered Arrow is based on the cursor used to name player characters in that series. In the dream sequence, the Boy finds a crying naked boy who will follow him through the arches into a house at the end of the area. Inside is Spoiler:Gramby, where it's revealed that the naked boy is not only Gramby's presumed dead grandson, but also the Hero chosen by the White-Feathered Arrow who is destined to atone for killing monsters by healing them all. A long line of monsters and people from across history forms outside; talking to Florence and Tao at the end of the line will end the dream. In unused cutscenes and the cut ending, Spoiler:the naked boy evolves into the Dragon as he heals more monsters, and is eventually killed by the Hero, who he acknowledges is himself.