The ancient key is an item which can be found in the locked room in the dragonkin laboratory underneath Ungael during the Dragon Slayer II quest.
In this laboratory, six old notes can be found by searching various ancient machinery, a door can be found to the east, as well as a lever to the south-west. Once pulled, there's a limited amount of time that the doors stays open so players must be quick in order to enter the room. In this room they will find the ancient key as well as a Dragon key piece.
The key is later used to unlock the mithril door in the Ancient Cavern.