In the original version it first becomes available after both Demon Wall enemies are defeated in the Tomb of Raithwall. The party can touch the Blue Crystal where the first demon came out to reveal the secret area of the Royal Passage area. The chest is not guaranteed to spawn or contain the item, but it can be harvested infinitely. The weapon is one of the most powerful while easy to obtain for this point in the game.
Demonsbane is a weapon.