Following the King's instructions, your next destination is the Minish Woods, located to the east of Hyrule Town. This area introduces you to the concept of shrinking and the invaluable companion, Ezlo.
To reach the Minish Woods, exit Hyrule Castle and head east through Hyrule Town. You'll find the entrance to the woods on the eastern edge of the town. The woods are a maze-like area, and you'll encounter your first enemies here. Be prepared to use your sword to fend them off. Your primary goal in this area is to find the talking cap, Ezlo, who will become your guide and provide the ability to shrink and grow. This ability is central to the gameplay of The Minish Cap, allowing you to access new areas and solve unique puzzles.