Lan Di stole the dragon mirror when he murdered Iwao. Lan Di's organization, the Chi You Men want to collect both the Dragon and Phoenix mirrors so the legendary Chinese monster called Chi You will resurrect itself and devour the world. Lan Di did not know that Iwao also had the Phoenix Mirror, which Ryo Hazuki finds in the Hazuki Residence Basement.
It's not until Ryo gets to finally meet with Yuanda Zhu in Kowloon that he learns more about the Dragon Mirror. Both the Dragon and Phoenix Mirror belonged to Sunming Zhao and Iwao brought them back to Japan. Zhu explains that when the two mirrors are brought together they form a key to treasures "hidden away in order to revive the Qing Dynasty". By using the light of a candle and smoke blown over the mirror, lights appear above the mirror to form the "The Big Dipper". This forms part of a map, but one mirror is not enough, the light of the Dragon Mirror is also needed to see the full map. Zhu also explains that Phantom River Stone can only be found in Bailu Village in Guilin, and the descendants of whoever created the mirrors should still live in the village.
Shenmue II Edit
In Guilin, Ryo finds a diagram for both the Dragon and Phoenix mirrors in Shenhua's house. She explains that all she knows about it is that her step-father has said it had been in his family for a long time. The next day, Shenhua and Ryo enter the Stone Pit where her step-father is said to be gathering Phantom River Stone, however he isn't there. They do find a giant version of the both the Phoenix and Dragon Mirror carved into the wall of the pit.