"It speaks to us still. Darkness incarnate. We know now we can never escape it."
This entry may come as a surprise to some of you (including Scotty, who likes to try and guess my lists), and there's a good reason. I actually had forgotten about this place until I started coming up ideas for this topic. It managed to climb its way to #1, and I'll explain exactly why.
When you regain consciousness, you discover that you, Walter, and your dog are stranded on an unknown shore; Ben is nowhere to be found. Walter points out that the only way forward is through "a rather ominous looking cave". When you explore the cave, you find a magical barrier on the floor with skeletal remains around it. One of the unlucky explorers has a book on him, which Walter (despite it only containing "gobbledygook", as he puts it) uses to dispel the barrier. This reveals a long and winding staircase, and you decide to follow it down.
You then find yourself in what appears to be an abandoned temple of sorts, and your dog (who is normally happy and energetic) is hunched down to the ground and whimpering. Even Walter expresses his dislike for the situation, when suddenly you are met with a wall of eyes and a voice that says "All the light in you will die."
At this point any shred of bravado left in Walter is gone. He begins to panic and repeatedly states that you need to leave immediately, all the while you are forced to fight off the "Children" (the shadows) and endure the relentless taunts of the Crawler. Walter manages to drive it off but lobbing his torch at it, and the two of you forge on. You then come to a large dropoff, and you tell Walter you'll hop down to make sure it's safe. When you turn to tell him to follow, the Crawler laughs and Walter screams.
This place seems like something straight out of a vivid nightmare. It may not seem all that scary, but it's your dog and Walter's reactions that make it truly terrifying. The music is also some of the most ominous I think I've heard in a video game. I picked several of these places on this list based on the ones I'd least like to find myself in, and this just happened to come out on top. If you haven't played the Fable series, I'd highly recommend it!