Nightmare Stone was created when the three high priests representing each culture battled and killed Quaxet. They then entombed his spirit within a crystal orb which was thereafter named the Nightmare Stone. The stone was sealed within a vast obelisk which likewise was sealed within a temple deep within the rainforests of the Amazon to prevent Quaxet from being unleashed again.
In 2000, Lara Croft was sent to explore the temple, she unleashed the temple guardians, which would of lead releasing Quaxet's spirit. She found the Nightmare Stone before that could happen and threw it into the lava, destroying it.