A Rude Awakening | Act I Dragon's Dogma Guide
Last update: 11 May 2016
To begin the next quest, talk to Ser Mercedes. He'll suggest you take a nap. Agree.
While you sleep, the Encampment will be visited by a Hydra. Fight it with arrows or by attacking one of the heads. You can climb onto it or keep it at bay.
You don't have to defeat the beast itself - it's enough to cut off one of the heads.