The exterior of Stony Creek Cave is marked by a small pond in a snowy area of Eastmarch just south of the Eastmarch Imperial Camp. There is a docked boat at the pond and harvestable clams on the pond bed. The entrance is along the mountain along the pond’s edge.
The cave itself consists of the stream that is filling the lake at the entrance and only has two real rooms. The first is about half-way up on the right. Two bandits standing guard at a watch post that overlooks the stream. Behind them is the treasure room where a bandit marauder is working on an alchemy lab. A swinging ball trap will prevent you from sneaking up on her. The fight itself can be tough for low levels as she casts strong frost magic and has minor healing spells. Once she is down there is a lot of loot laying around including Finn’s Lute (which can be returned to Inge Six Fingers for a free +1 in all Stealth skills), Mystery of Talara, Part 4, Unusual Gem, and Treasure Map X. The only other room in the cave is at the very top of the stream. You’ll find a bandit mining one of two moonstone ore veins.
The area above the waterfall is accessible through Kagrenzel. By exploiting the geometry it is possible to get up the waterfall and get to the “lake” portion of Kagrenzel, and easy access to the chest.