The Sunken Castle

The Sunken Castle is a destroyed, flipped and underwater version of Princess Peach's Castle that can occur in more extreme instances of personalization, occurring most often after a bad ending has been experienced in the copy, though it can be found though other means, such as finding a tattered or destroyed version of the Princess Peach painting. It has been described as a gloomy and figuratively dark area with a negative emotional aura, sharing many elements with Wet-Dry World.

According to some reports, the Sunken Castle is a result of a timeline where Bowser defeats Mario at some point in the game, kidnaps Princess Peach, and in order to prove his superiority, he either floods the Castle Grounds, or manages to throw Princess Peach's Castle into the ocean. This darker story may explain why the Sunken Castle was scrapped, though other theories have been proposed, such as this supposed bad ending being scrapped for other reasons such as cartridge limitations, making the Sunken Castle redundant as the method of accessing it would have been removed.

Appearance
The Sunken Castle is described as an upside down or destroyed version of Princess Peach's Castle, though some have instead reported it is tilted and/or in good condition. The area usually has no segments that aren't flooded with water, making the player have to rely on coins to survive. Notably, in manifestations where the Castle Grounds is included, some have reported that the stained glass appears very different, appearing to imply it was from a build before the final stained glass was added.

The Sunken Castle's interior, usually accessed by swimming through where the doors would be, is reportedly either a flooded and destroyed version of the castle from the standard copy and acting as an Alternate Castle, potentially including anomalous floors, or an entirely unique area that makes the Sunken Castle function more similarly to a level than a hub world.

Interior Manifestation 1
The "level" manifestation of the interior is described as an area very similar to Wet-Dry World with various assets from Princess Peach's Castle, containing several enemies such as Bubs, Boos, and some anomalous enemies such as Bloobers and Depressed Skeeters. The water crystals from Wet-Dry World have been reported to appear, though they have commonly lacked the ability to lower the water level, implying that they are an unfinished remnant from when this area was in development.

Only one Power Star has been reported in this manifestation of the Sunken Castle, and that is simply for reaching the end of the area. This has also been reported to prompt an Alternate Ending that would return the castle to normal, though in manifestations where it is simply a hidden level, this Power Star does not appear to hold any anomalous properties.

Interior Manifestation 2
This manifestation of the Sunken Castle's interior appears much more similar to the original version of Princess Peach's Castle, though it still commonly follows the general theming of decay present in the Sunken Castle. Most levels in a standard copy, as well as anomalous levels, can also reportedly be accessed in the Sunken Castle, either through paintings or other warps. These levels can reportedly appear normal, though some have reported that they can be replaced with warped, broken and potentially flooded versions of them, such as Whomp's Fortress being replaced with the Ruins level. Otherwise, this manifestation of the Sunken Castle's interior appears to be able to function as a regular hub world, fitting most commonly with it's manifestation after a bad ending.

In both manifestations of the interior, if the Sunken Castle had appeared as a result of a bad ending, the Alternate Ending known as the savior ending can potentially be accessed in order to revert the Sunken Castle back to it's original state as Princess Peach's Castle. However, others have reported the Sunken Castle can be a permanent change unless the save file is deleted, which some have claimed to be an effective way of removing not only the Sunken Castle but all personalization found in the copy.

Theorizing
The Sunken Castle's dark nature and supposed backstory appears to indicate that it was scrapped in order to keep Super Mario 64 as child-friendly as possible. However, some alternative theories state that it was forced to be scrapped when the Alternate Endings were scrapped, or due to cartridge limitations as the Sunken Castle is reportedly a very large area or level.

Other theories that have been proposed is that the Sunken Castle was intended to only be added by the A.I. to test it's abilities, or that it is created entirely by the A.I. through Dynamic Level Arrangement. This final theory appears to be the most interesting, considering that the Sunken Castle's backstory would have to have been created by the A.I. itself, implying some form of sentience.

Report 1
A video by Youtuber First Name Last Name was uploaded documenting the Castle Grounds of the Sunken Castle. It begins in the regular Castle Grounds, with part of the stained glass visible for a few seconds appearing grayscale. The player goes to the entrance to Bowser in the Dark World, where the Princess Peach painting can be seen becoming desaturated. Upon entering the trapdoor, they access the Sunken Castle, before clipping into the stained glass, which is notably grayscale just like the beginning of the video, before the player drowns and the video ends.