In the first game, the Red Key is found on the third level of Crossbone Isle. It is used to open a red door that keeps players from moving on to the next level.
In the second game, the Red Key is an item found in the Jupiter Lighthouse. It grants access to one of the two "towers" where the player must activate a statue figuring a bowman in order to open the top of the lighthouse. The Red Key from Crossbone Isle in the first game can also be transfered to this game, although it will appear as the same description as the one in Jupiter Lighthouse, and doing so is inadvisable as there is no legitimate way of then getting rid of it from your inventory.