It's the past in the Enchanted Forest, apparently a section way off where they don't know much about Snow White. The princess is on the run from local soldiers intent on bringing her back to the queen. She won't be taken and jumps off a cliff into the ocean. Here is where she meets Ariel, who rescues her from a would-be watery grave.
Ariel and Snow White have a chat. Mermaids can walk on land during the high tide for 12 hours, says Ariel, due to the graces of Ursula, the sea goddess. Snow White wants to help Ariel meet and hang with the love of her life, Prince Eric, since she saved his life and all when he was shipwrecked. Snow and Ariel will have to go to a ball.
Back in Neverland, Regina is teaching Emma how to use her magic. She'll need emotion to get it to work. Hook secretly tells Charming and Snow that Neal is alive and on the island. They'll keep it from Emma for now. Though apparently now is right now as Snow White blurts it out as soon as they see Emma. Oh, Snow. Regina can't take it and leaves.
TIMELINE: Snow White through the years
Elsewhere on the island, Rumpelstiltskin and Peter Pan have a chat as Pan continues to try to manipulate Rumpel to get him to leave the island. Interestingly enough, Rumpel says that he can kill Pan, but he would be killing himself. Hmmmm... He has said this before, but never really gotten corroboration from Pan. Anyway, Pan knows about Belle and he tells Rump to go back to her and live out a nice life, leaving Neal and Henry on the island. That won't happen.
Rump then sees Belle (apparently a figment of his conscious mind or something) sitting with him on the island. She wants him to come back to Storybrooke. Regina, freshly split from the do-gooders, runs into the dark one and sees him talking to Belle. She can see right through the deceit, and chokes out Belle, who turns into one of the shadows that Pan employs. Rumpelstiltskin and Regina are finally going to join forces and become an evil dream team to take down Pan. Shouldn't take long...
Snow White and Ariel crash Prince Eric's party in the Enchanted Forest. Prince Eric remembers Ariel's face from his shipwreck. He invites her on his world-traveling trip as they dance alone in the center of the ball. Regina is watching all of this through a mirror, despite the fact that her soldier told her Snow was dead from the fall into the water. Now he's dead, and she has an idea.
Snow and Ariel talk about Ariel going with Eric on his trip around the world. Snow says to go, but Ariel has to think about it, and asks Ursula to counsel her. Ah, there's no Ursula, she's just a ... oh wait. Regina appears, transformed into Ursula, complete with tentacles. She gives Ariel another option: Ariel can have her legs forever. Ariel takes the option and slaps a bracelet onto Snow's wrist. It turns Snow into a mermaid, but Ariel thinks it's a good thing because she can run from Regina. Poor naive Ariel. Regina shows up gloating, to the bewilderment of Ariel, and is about to kill Snow when Ariel stabs her in the neck with a fork. She grabs Snow and swims away to safety, a mermaid once more.
At the prodding of Snow, Ariel swims back to Prince Eric to tell him she wants to go, but Regina takes her voice! She can't call out to Eric, and he leaves. Regina is only too happy to have Ariel's heart broken, and the words "little mermaid" have probably never been sneered so well. Just plain evil. But, on the flip side, Regina is visited by the real Ursula and menacingly warned to never impersonate her again. Ooohhh.
The Cave of Echoes is where Hook, Emma, Snow White and Prince Charming must go to rescue Neal. In the cave, the only way to get through it is to tell one of your deepest, darkest secrets. Just more fodder for Peter Pan to use when whispering twisted truths in your ear. But they have to do it to get Neal. Captain Hook tells the first secret: He has feelings for Emma. Snow, the second: She wants to have a baby! She missed growing up with Emma and she regrets that. Charming finally tells Snow and Emma that he can't leave Neverland because of the Dreamshade poison and cure. Emma admits that she still loves Neal, but she was hoping that he was dead so that she wouldn't have to face all the pain of loving him again. Wow. Every show should have a cave of echoes to clear things right up. Kind of.
Back to the evil duo and "most powerful practitioners of magic that ever lived" (a bold claim, Regina)... Regina has figured out a way to get back to Storybrooke to retrieve an object that Rumpelstiltskin needs to deal with Pan. It seems that mermaids are able to traverse the dimensions, and she calls for Ariel. She comes when summoned, and, I guess after decades, Regina gives Ariel her voice back, gives her the ability to walk on land anytime she wants, and tells her where Prince Eric is. All she has to do is retrieve Rumpel's mystical object from his shop back in Storybrooke -- which also happens to be where Prince Eric is dwelling.
The next episode, "Dark Hollow," seems to be about rallying the troops back in Storybrooke to help out the stranded Neverland crew.