As soon as you enter the Forgotten Capital you will reach a fork in the road that splits off in three different directions: one to the left, one to the right and one in the middle. Start off by taking the pathway to the left.
Follow the pathway along until you reach the first house on the left side of the screen. You will find a Save Point inside and a treasure chest on the second level that contains a Magic Source.
Continue traveling to the right of the house until you reach the Forgotten City with the spiral staircase. Travel down the stairs to find a treasure chest that contains an Aurora Armlet (a very strong piece of Armor which I would recommend equipping on the character who takes the most damage, typically the one holding the Cover Materia).
Go back to the entrance and this time take the pathway leading to the right. Take a right at the first fork in the road and enter the house that looks like a shell on the inside. There is a treasure chest at the top of this house that contains a Guard Source.
Proceed down the pathway until you reach the next fork leading to another house. There is a treasure chest on the bottom floor that contains an Elixir. Climb the ladder to the second floor and you will be given the option to take a break here if you choose for a free HP and MP refill. Get some rest and the continue up to the top of the house to find an Enemy Skill Materia hiding behind the top bed.
There is nothing any further down this trail so make your way back to the three-way intersection at the entrance to the Forgotten Capital. Proceed down the middle pathway to the north.
Enter the building behind the lake and grab the Comet Materia at the top of the building. Comet magic is an incredibly powerful magic-based attack that is perfect if you have any characters focused on magic / MP. Make your way down the blue set of stairs in the middle of the house which lead downward (use the screenshot below to help you find them).
Another reminder: before you descend all the way down the stairs you should make sure that one of your characters has the Water Ring that you picked up in the Corral Valley equipped in preparation for an upcoming boss battle.
Continue down the glowing staircase towards the castle at the bottom. Use the Save Point at the bottom of the staircase before you proceed as you may wish to come back to this part of the game.
Walk towards the steps at the bottom to continue the story.
WARNING: Do not scroll past this point until after the boss battle as spoiler images are included below.
Boss Battle: Jenova·Life
All of Jenova·Life’s attacks are water-based, which means that as long as one of your characters has the Water Ring equipped, they cannot possibly die. From there it is just a regular battle. Jenova·Life will cast Reflect at some point in the fight so be careful about relying on magic-based attacks too much. You can also use your Destruct Materia to remove the Reflect spell by casting DeSpell on her.
Reward: Wizard Bracelet
There are a number of additional scenes that follow the Jenova fight and they make up the conclusion of the first disc. You will be given the option to save your game before proceeding which is recommended. Click next to proceed to the next section of the strategy guide.