When you first arrive in Toad Town and face your first massive Goomba, it's a ghost town. Olivia suggests that you try going to Peach's Castle to find out what's going on. Arriving at the entrance, you discover that it is blocked by a fallen bridge. You have to find an alternate path around it.
You want to head to the building to the left of the downed bridge. A shy guy is stuck in the doorway, and when you take him out he will reward you for how you have to use the sewer entrance to reach Peach's castle. Enter the house and go left towards the metal entrance on the ground. While standing on it, Mario will have the opportunity to check it, but you will not be able to lift it. You need a manhole hook to open it. The shy guy who told you about them will say another shy red guy has it, but they're not as good-looking as him, obviously.
You won't have to go far to find the manhole hook. Go further left and down, and a shy, screaming guy will be in the mouth of a massive Goomba. Go through the hedges and repair the entrance to the building door using confetti. If you need some confetti, you can find flowers near the Sewer Entrance building and around town. Go inside the building and use your hammer on the drawer to open the lower cabinet and exit to face the Goomba. Wait for it to be in front of you to drop the sticker, then wait for it to light up to hit it three times with your hammer to release it for the shy guy. Unfortunately, the manhole hook is not there. It's on the docks.
The docks are on the other side of town, on the right side. You can get there by walking, or you can go down the nearby stairs, tear off the sticker on the green pipe and use it to get there faster. There is a great Goomba guarding him, and now you should know how to beat him. Once it's down, repair the red brick building using confetti.
Inside the building, go to the right side and take Spike out to give you a clue about the boxes. Use your hammer on the shelves to shake the boxes and do this until one falls. A 1000 times arm symbol will appear when it does, and you can tear open the red brick wall to reveal a door. Go through to have a quick Goomba battle, then you have to climb the shelves to grab the manhole hook. Hit the green stairs on the right side, jump on it and go to the other side. You can now return to the sewer to make it Peach's Castle.