The First Battle of the Underworld is an armed engagement between the Dwarven Kingdom and Baron in Golbez's quest to obtain the four Dark Crystals in Final Fantasy IV. Although presenting the toughest resistance Baron's Red Wings have faced so far, the dwarves lose the Crystals to Golbez. Nevertheless, their tank army remains intact and undefeated and later plays an important role in the Battle of the Giant of Babil. The battle is remembered in the Underworld as the "Crystal War".
By the time Cecil's party arrives in the Underworld, Golbez has obtained two of the Crystals. The party's airship, the Enterprise, is caught in the crossfire between the warring parties north of Dwarven Castle and makes an emergency landing. King Giott of the dwarves tells the party the tanks have repelled the Red Wings and that the third Crystal is safely stored in the castle's crystal room. Golbez sneaks into the crystal room and steals the Crystal before escaping after a face-off with Rydia's summons.
Giott takes the bad news lightly and divulges the last Crystal is in the Sealed Cave which Golbez cannot open. He sees this as a good time to reclaim the Crystals, and orders his tanks to create a diversion so Cecil's party can enter the Tower of Babil. The party encounters Dr. Lugae and Rubicante preparing for war with Eblan, an Overworld kingdom. They learn Rubicante has already moved the Crystals to the Overworld, and that their plan had been a failure before its implementation. They defeat Lugae and his robotic son, Barnabas, but not before Lugae activates the tower's Super Cannon to destroy the dwarven army. Yang sacrifices himself to stop the cannon and is presumed dead. Golbez appears and tries to kill Cecil's party, but they are saved by Cid and flee on the Enterprise. They are chased by the Red Wings, and Cid sacrifices himself to seal the entrance between the Underworld and the Overworld using explosives, allowing the rest of the party to escape. Afterwards the party reenters the Underworld through the Cave of Eblan and meets up with King Giott.
Giott fears Golbez might succeed in breaking into the Sealed Cave and take the last Crystal and orders the cave opened for Cecil's party so they can move it to a safer place. Golbez seizes the chance to steal the Crystal through manipulating Kain Highwind before retreating to the Overworld, having fulfilled his last objective.
Although the dwarves fail to protect the Dark Crystals, the effectiveness of their tanks prevents their kingdom from being destroyed like Damcyan, or beaten like Fabul. The dwarves were never militarily defeated, and their tanks remain intact as the Red Wings retreat from the Underworld.
Having gathered all eight Crystals, Golbez summons the Giant of Babil, triggering a battle between the Giant and the joint forces of the Overworld and the Underworld. The battle, which ends with the defeat of the giant, marks the first appearance of the dwarven tanks in the Overworld.