You finally seal the keyhole in Traverse Town after you return from Deep Jungle with the Gummi Pieces you're told to ask Leon & Cid about. After talking to Leon in the cave behind the alleyway (enter the alleyway from 2nd district, and use red trinity to enter the cave), you're given a package to deliver in 3rd district. Once that's been complete, go to the abandoned house in 3rd district to be told to go to the gizmo shop (2nd District) and ring the bell 3x. This will make the keyhole appear. When you go to close the keyhole, you're greeted with a boss fight. Like with the other keyhole achievements, this did not "pop" for me until I boarded the gummi ship again.
Video Walkthrough is below. I did not create this video, and all credit for it goes to its creator!