Underground: Operation Gremlin Drop [Part 1]
When traveling through the Underground, Gus will point out a trapped Gremlin. There are eleven to find and free throughout the game, including this one.
The second Gremlin can be found in Rainbow Falls. Just after the laser eye, bust the lock on the center door and head down the stepped rocks.
Turn right to see to geysers. Leap across the first, and thin out this wall just past it to find a Gremlin.
The third Gremlin can be found in Disney Gulch. In the northern area of the level there is a rock that bobs atop a geyser. Ride this rock up and thin out the boards to uncover a trapped Gremlin.
The fourth Gremlin can be found on a rooftop in the northeast area of the first part of Bog Easy.
From the start of Blot Alley, turn around to find wall that can be thinned out. One the other side is another trapped Gremlin.
The next Gremlin is trapped in the Train Tunnels. At the first diorama, thin out this wall on the right side of the room to find the Gremlin in the space beyond.