From Diablo Wiki
Whimsyshire is the Diablo III Secret Level, a humorous area that's a direct homage to the Diablo II Secret Cow Level.
The information and images on this page are spoilers. If you want to see the secret level with your own eyes, beware.
Scroll down to reach the content...
 Whimsyshire Overview
The secret level is a fully-playable area of the game. There are monsters (cute ones), gold and item drops, health orbs (which look like giant pink cupcakes), random and elite bosses, and even an amazing, baby's-blanket looking minimap.
Though the area is accessed through Act One, the difficulty is balanced to be equivalent to late Act Four. Thus a low level character will be slaughtered instantly, even in the normal difficulty version of Whimsyshire.
The secret level is not going to be a major portion of the gameplay; it's a fun treat and am amusement, but the developers didn't want to recreate the Diablo II Secret Cow Level, which was literally the most profitable area to play in during some early game patches.
 How to Enter
To gain access to Whimsyshire requires five special ingredients, and a Plan to teach the Blacksmith how to craft them into the Staff of Herding. This object must be taken to the Cow King's Ghost, a spectral bovine located on Old Tristram Road, near that pit with the mysterious red glow from within.
After the Cow King's Ghost conversation, the glow changes to a rainbow color and it becomes a clickable dungeon entrance. As was the case with the Diablo II Secret Cow Level, characters must have defeated that difficulty level to enter the secret level, which is balanced to be about as difficult as Act 4.
 Required Ingredients
Players must assemble the five ingredients and the Staff of Herding plan to enter the level.
- Black Mushroom ( )-- Found rarely in a room on Cathedral level one, in early Act One.
- Leoric's Shinbone ( )-- Found rarely in the fireplace in Leoric's Manor, in late Act One.
- To farm for this select Quest number 9 "The Imprisoned Angel" in the Change Quest menu when you log in. Take the Waypoint to Leoric's Manor. You will have two rooms to fight from the back of the manor to reach the room with the fireplace in.
- Wirt's Bell ( )-- An Act II vendor (Squirt)sells it for 100,000 gold on her Potions and Dyes tab.
- Liquid Rainbow ( )-- Spawns in the Mysterious Cave in the Mysterious Chest in the Oasis, Act 2. Save Zaven the Alchemist and he will open the entrance to the cave. The chest is located on level one.
- Gibbering Gemstone ( )-- Random drop from Chiltara in the Caverns of Frost, Level 2, Act 3. It’s in the Fields of Slaughter. If you get Ice Caverns exit out try again. Chiltara is a Superunique with a low spawn chance.
- Plan: Staff of Herding ( )-- To teach the recipe to Haedrig. Drops randomly from Izual, Act 4.
 Upgrading the Staff
The Staff of Herding must be upgraded in order to access higher difficulty levels for Whimsyshire.
Once the original staff of herding is complete, the player needs only to buy upgrading patterns from Gorell the Quartermaster in Act IV. The plans always cost one gold each, but are increasingly expensive to upgrade.
The Nightmarish Staff of Herding version of the staff requires the normal staff and 100,000 gold. Once crafted, the player can then enter the Nightmare version of Whimsyshire. The same goes for the higher difficulties, although the crafting fee increases exponentially.
The patterns are only purchasable from Gorell in Act IV, and has a few requisites. The player must have the final Act IV quest active (#4), and the player must also know the previous difficulty's pattern. As an example, in order to purchase the pattern for the Hellish Staff of Herding, the player must already have taught Haedrig the pattern for the Nightmarish Staff of Herding. Each difficulty's pattern must be purchased within that difficulty. So to obtain the pattern for the Hellish Staff of Herding, the player must go to Hell Act IV to buy it. The final version of the staff is the Infernal Staff of Herding.
Two videos showing off the level in action.
Video with cow king and whimsyshire play footage
This video shows the Cow King's ghostly conversation, then footage of the early battles in the level.
Various screenshots showing off portions of Whimsyshire.
Cuddle Bears are dangerous enemies.
Pink cupcakes are health orbs in Whimsyshire.
Leoric's Shinbone in Leoric's Manor. Used to craft the staff of herding.
Black Mushroom from the Cathedral (level 1).
 Whimsyshire's Music
The music played in the level is a famous piece of classical music for the piano, Ravel's Gaspard de la Nuit - Le Gibet. (Video of that composition here.) This was first revealed in the following video; the backwards playing begins around the 0:38 mark.