Head for the town of Kalm, to the northeast*. Meet everyone on the 2nd floor of the Inn and Cloud will divulge what he knows about Sephiroth:


When you first arrive at Nibelheim, the only things you must do are talk to Sephiroth on the 2nd floor of the Inn and get some sleep. But before you do, consider taking the time to explore. Make sure you visit Tifa's House, the second from the right. Go to her bedroom on the second floor and play her piano 'just a little.' Remember the tune; it will be the key to finding Tifa's Level 4 Limit Break later in the game. When you're done exploring, retire to the Inn. In the morning, talk to Sephiroth and head out for the Nibel Reactor. Follow Sephiroth into the core and help him make repairs. Find Sephiroth in the library in the basement of the Shinra Mansion*. After he speaks, leave the room. When you wake up, head left, across the hall, and back down to the basement. Find Sephiroth in the room at the far end of the library and follow him out of the mansion. Go to the village square and check on Cloud's House. Head for the core of the Nibel Reactor and follow Sephiroth into Jenova's chamber.


Before you head downstairs, open the wardrobe in the far-left corner to find a MEGALIXIR you can't quite reach. Open the doors repeatedly until Cloud kicks the wardrobe and the item falls down. Meet the others at the front desk and you'll receive the PHS. Talk to the townspeople and you'll discover a man in black carrying an impressive sword was seen walking east. Before heading out, consider taking the time to visit each residence and go shopping*.

*NOTES
En route:
Consider taking the time to find a Custom Sweeper before you get too far away from Midgar. If you've equipped the Enemy Skill Materia, you'll learn your first Enemy Skill when the Custom Sweeper attacks you with its MATRA MAGIC. Secondly, you can steal the ATOMIC SCISSORS if you're persistent. Finding the library: Head up the stairs and to the right. Take the secret passage on the far side of the near-right room and descend the hidden steps. The library is located at the opposite end of the corridor.



Shopping and Visitor's Guide:
Stop by the house next to the Inn and open the closet in the far-right corner to find an ETHER. Enter the next house to the right, go upstairs, and open the wardrobe to find another ETHER. Go to the next house, take the stairs, and open the wardrobe to find a GUARD SOURCE. Return to the 1st floor, climb the spiral staircase in the far-left corner, and open the large chest to find the PEACEMAKER. Visit the right-most house in the main square and open the door under the stairs to find a third ETHER. Head for the upper concourse and enter the middle or right building to find the Materia and Weapon Stores. You'll have your first opportunity to obtain EARTH MATERIA @ 1500 Gil, HEAL MATERIA @ 1500 Gil, the MYTHRIL SABER @ 1000 Gil, the CANNON BALL @ 950 Gil, the MYTHRIL CLAW @ 750 Gil, and the FULL METAL STAFF @ 800 Gil.