Dwarf brew is a potent spirit made by Kamen. It is used in the later stages of the Underground Pass quest. It is obtained by using an empty bucket on a barrel inside Klank's house, found deep inside the underground pass.
The brew is used to light a pyre over the tomb of Iban, cremating his remains and turning them into Iban's ashes which must then be used on the doll of iban to create his effigy.
This is the same beverage that Kamen offers to the player, causing them to lose 3-5 hitpoints and a few Agility levels if they accept.