Just noticed that there was no guide for this boss so I thought i'd sum it up. There are around three different phases, which all consist of the same thing just in a different configuration.
When the fight starts, ring the bell to make the beam of light appear from above similar to the previous puzzles. Then you need to solve the whole light puzzle just as in the other rooms, with the beam of light hitting the crystal to Terrax's left.
When it hits the crystal you need to go all out as this is the only time he'll take any damage. After around 10 seconds he'll stand back up and cause a shockwave knocking all the characters down.
Depending on the damage you caused, you may have to either break the rocks stopping the light from hitting the crystals or Terrax may have triggered a new phase, and all of the positions of the light will have changed, and the puzzles get slightly more difficult each time they change.
Adding to the difficulty is the CONSTANT spawn of little adds that get in the way of the light or constantly barrage you with bombs. Terrax also throws a GIANT AXE at you from time to time, which is hard to dodge due to the ridiculous camera angle and takes half your health if you haven't upgraded anything.
I found this more difficult than it probably was as I played it with three friends, and without upgrading any character in an attempt to upgrade all at the end of the game and reload. If at all possible play this level solo as the thing, upgrade the thing's smash ground ability to max to make it much easier. The loss of coins is easily made up for by rerunning the first level once more. Keep the camera focused on Terrax all the time and just ignore the little guys.