Follow these steps: 1) GET YOUR TOWN HALL TO LEVEL 5. Many people miss this step, heck, even I missed this step. 2) An earthquake should happen after some sort of dialouge box comes up. The earthquake chould make some sort of structure come up from the floor and release odd looking wild monsters. 3) This should repeat until the structure fully emerges from the ground (not all at once, it happens after a certain time limit) 4) When the structure fully emerges, you should be able to go underground. But before you go, you'll have to destroy all of the underground bases the guy made. BEWARE: As usual, the last base is the hardest. The others should be easy.
About the last base: Yes, it is hard. Also, sulfur is in the air and it will suffocate your monsters. Thus, over time, they will lose health. Zafreeti is best for this.
5) After the last base, you can build underground