The Hanged Demon appears in the level Gallows Tree. The demon tells Lara he has a reward for her if she finds his heart and takes it to its rightful place. The demon mentions that he has a "troubled spirit" and must be quick with his words "for they watch and wait to once more draw me back into the darkness." The demon says that he is condemned to wander between the kingdoms of man and elementals, that his heart has been hidden in the World Tree, guarded by dragon Nidhogg.
Lara, at first, seems reluctant to trust him. The Hanged Demon laughs and prepares to disappear: "My soul is gone and how it fares nobody knows and nobody cares."
Nidhogg is a dragon in Norse mythology that eats the roots of the World Tree.