(Click to embiggen, else much of the below won't make any sense)
All the PCs realise that they have had the same dream recently of a small island atop an underwater spire with a large fortified manor house or walled village, and lighthouse built underwater i.e. the picture handout above. For Old Skool characters this looks loot-able and therefore finding it becomes a matter of urgency, for characters from AD&D 2nd Edition onwards the dream was accompanied by visions of Merfolk crying for help and therefore finding it becomes a matter of urgency.
Island is located wherever DM wants to send campaign and is named appropriately to the local culture. Underwater construction is lair of Ventru the Atlantean, Merman Vampire (or Mermaid Vampire if you like).
High-level PCs probably have magical means of descending to the level of the lighthouse (where the underwater entrance to lair is). Low-levels probably don't and their attempts to dive to it flounder in strong currents returning the PCs to the surface after a bit of hp loss due to being battered against the rocks. If they are looking for it while underwater, something that might be the lighthouse beacon glow is vaguely visible down in the depths - on the right of the picture.
The island itself is occupied by Horrics, basically Giant Ferrets from B/X with the faces of wizened old men (for little reason other than the fact that it seems quite freaky and Chaotic whereas ferrets are in reality friendly and playful domesticated creatures. It's just a reskin of an existing creature and it's stats). Whether these are vicious predators or only fight in self-defence is up to DM and probably depends upon whether your game is low-level or high-level, or hack-and-slash or not. Despite the human faces they have only animal intelligence.
At the highest point of the island is a deep vertical shaft with an ancient spiral staircase carved from the rock and built up with pieces of driftwood and derelict ships. PCs can descend to the dungeon from here - it may be the home of bats or bat-like creatures (e.g. Stirges).
Whatever Isle Random Finds (d6)
1 - Skeleton in rotted remains of diving suit (brass helmet worth 65gp)
2 - Coastal erosion reveals 2500sp in sacks marked PROPERTY OF CAPTAIN DIVIATIO
3 - Lobster pots with 2d6 Lobsters, each effectively a meal if boiled
4 - Mound of earth. d6 hours to dig up, chest with 400gp of contraband rum, playing cards, foreign pornography etc.
5 - Suspiciously clean hand-axe. Actually a +1
6 - d6 Turquoise each worth 20gp.
Waterfall - Any PC stupid enough to go over takes 2d6, Save vs Paralysis to halve. Fatal damage - drowned and 3-in-6 body lost, washed out to sea.
Alternatively the underwater entrance is a potential means of ingress or later escape.
The lighthouse beacon is something akin to a Kalte Firesphere from the Lone Wolf gamebooks (magically glowing hemispherical stone) under a dome of transparent crystal. Any merman/mermaid or similar seeing the glow of the beacon at close quarters must Save vs Spells or sink into a state reminiscent of being slipped a Mickey Finn of rohypnol. Once this happens Ventru's servants, who are amphibious humanoids capable of breathing air and water such as some form of Sahuagin or saltwater-adapted Chaos Toadman venture out into the sea and abduct the helpless Mer-being, the victim intended for later consumption by Ventru. Ventru isn't keen on the blood of the surface dwellers as it lacks the necessary tang of brine and sushi.
These servants exit and enter through a natural underwater fungus that grows across a tunnel mouth in the side of the spire (to the left of the beacon on the picture). This can be pushed apart and naturally rapidly squeezes back around anything passing through it, creating a reasonably water-tight seal between the air-filled dungeon and the sea.
PROTIP - In Lamentations of the Flame Princess Grindhouse edition this is probably Giant Vagina Dentata instead.
The following important rooms are found within the dungeon. Others to be added by the DM.
The Servant Lair - one or more rooms for the Sahuagin/Chaos Toadmen. Large drains to get rid of any water ingress from when the fungus "seal/door" is used.
The Charnel Pit - A deep pit lined with downwards facing spikes of coral. All the blood-drained Mermen are flung down here so it is a pile of skeletons (top half human, bottom half fish) and decomposing corpses with potential for hostile undead encounters or friendly/neutral ghosts.
The Cracked Window - Ventru's quarters are on the left side of the spire (see pic). The windows are solid, translucent blue crystal with a calming blue glow filtering through into the dungeon. Mix of worked rooms (furnished) and natural caves (windowed). However one large window is cracked with an obvious large flaw and if the PCs can put enough destructive power here, then the complex can be flooded. However the huge water pressure here will make being in the room at the same time as the window is blown somewhat dangerous if not outright Save or Die foolish.
Prison/Larder - Merman and Mermaid captives, for whom the spell of the beacon has worn off and need rescuing.
Ventru's Lair - For low-level gaming, Ventru is tucked away in an inaccessible part of his complex. For high-level gaming, Ventru will play cat-and-mouse with the PCs and put in a personal appearance.
PROTIP - For Old Skool gaming the latter happens even if the PCs are low-level. Tough shit.
Access to Ventru's inner sanctum is via The Purple Gate...
The Purple Gate - This blocks off the end of a tunnel or chamber. Access is via opening both eyelids at the same time (requires two climbers as the distance is just a bit too great for a tall man to reach both), at which point the entire neck section "telescopes" down into the torso revealing the access. For high-level PCs everything else like the nipples, ear-rings and forehead jewel fire off traps - perhaps ejecting poisonous sea urchins or similar from concealed chambers of seawater.
Ventru's Illusionary Amusement Gallery - The lowest chamber of the dungeon appears to be home to a bloody battle between forces of Achilleos/Frazetta-style barbarian/bandit warriors, Orcs and Skeletons. This may take the PCs by surprise as nothing of this could be heard from the other side of the door. Casualties vanish and reinforcements arrive from places the PCs were not looking.
The battle is entirely illusionary and cannot be disbelieved. Just as the PCs relax and realise that they cannot interact with the slaughter in any way somebody is attacked at +4 by the Invisible Stalker that lurks here under instruction from Ventru to kill anyone who ventures here who isn't him. Watch the paranoia mount as the PCs start to suspect that some of the barbarians aren't illusionary...
The rest of the dungeon is fill-able with whatever you want - but you don't need me to tell you that.