The Color Dungeon is located in the Cemetery. After obtaining the Pegasus Boots, Link can knock a book off of the higher shelf in Mabe Village Library that tell him which directions to push the five gravestones in the southeast of the Cemetery. The directions are randomized, and thus every playthrough has a different combination of directions. If Link pushes them in the correct order, the dungeon's entrance appears under the last stone.
This dungeon was created to show the added color to the game that was not available in the previous version of Link's Awakening. The dungeon gave various color puzzles including floors, enemies and a strike puzzle that heavily relied on the color.
At the end of the dungeon, the Fairy Queen grants Link the "power of color". She asks if he wants red or blue. If he chooses red, he will receive the Red Tunic, which will increase his attack power. If he chooses blue, he will receive the Blue Tunic, which gives him double defense power. Link can change his suit at any time by going back through the dungeon. However, he cannot go back to the green suit without using cheats.