Go to Moonlit Pines and look for the small waterfall west of the stairs leading to Luna's seed cart and cottage.The fallen log is blocking that waterfall. Use Arborascend on it after the quest tells you to lift the tree.
Quick route
1Follow The Mysterious Bay until the spell objectiveDeliver the letter, speak with the witches, and reach the objective that sends you to get a tree-lifting spell.
2Get Arborascend from Webb of WondersThe quest specifically requires the spell that moves trees. Arborascend I is enough for this log.
3Travel to Moonlit PinesDo not search the Howling Marshes just because the mermaid story begins around Luna Bay.
4Find Luna's seed cart and the nearby stairsMove west of the staircase toward the small waterfall. The fallen tree lies across the water.
5Cast Arborascend on the logStand close enough for the tree to be targeted. A cutscene confirms that you found the correct obstacle.
Why the location is easy to miss
The quest concerns residents around Luna Bay, so the nearby marshes feel like the obvious place to search. The actual objective is elsewhere: the waterfall in Moonlit Pines, near Luna's seed business.
Wrong regionYou are searching the Howling Marshes
Leave the marshes and travel to Moonlit Pines. The quest log does not mean the tree is beside the mermaids.
Wrong spellThe log will not move
Use Arborascend, not the building-moving spell. The official wiki currently lists Arborascend I as costing 2 mana.
Quest timingThe spell does nothing at the waterfall
Check that the active objective has advanced to Lift the tree at the waterfall. Earlier quest steps must be completed first.
Fast landmark: find Luna's cart or cottage first, then use the staircase as your reference point. The waterfall and log are just west of it.