After leaving the Jelly Rabbit and Laughing Crab Realm, you will find the Little Fishman Ghost Realm. The waterfall is in the deepest part of the area.
I remember that the Little Fishman Ghosts seem to have a good attitude toward humans, but now I don't feel that way. They seem to hate humans now. I also noticed that they had some peculiar necklaces around their necks, and I could feel some kind of magic pulsating from them, something I've never seen before on a Little Fishman Ghost.
Could their change of attitude be related to those peculiar necklaces?