"The Jewel of Valencia is not collateral. It is the cornerstone of my kingdom. Wars have been waged over it."
—Isabella, "Joust Friends"
The Jewel of Valencia is the cherished crown jewel of the kingdom of Valencia. The emerald has been a much sought after prize that wars had been waged over. Isabella protected the royal gemstone for months after her country was invaded. It was later used by King Richard as a mere prop in an elaborate scheme to kill Galavant. It's first appearance was in the Season One episode "Pilot".
King Richard conquered the peaceful kingdom of Valencia in order to obtain a gift for his new Queen Madalena, the priceless Jewel of Valencia. Unbeknownst to him the King of Valencia entrusted his daughter Isabella with the country's crown jewel. She hid in the castle's basement for months until her parents lives were threatened and she was forced to reveal herself. Richard intended to hand over the Jewel to his wife until she berated him once again comparing her husband unfavorably to Galavant her ex-lover. Richard concocted a plan to kill his rival by having Isabella lure Galavant into a trap. As part of the plot he had her use the Jewel of Valencia to lend some verisimilitude. She would offer the gemstone as payment for him rescuing her kingdom before offering the real incentive: telling Galavant that Madalena still loves him.
If she complied Richard would not kill her parents and his army would leave Valencia. Isabella did as she was told and followed Richards instructions to the letter. As expected Galavant refused to accept the Jewel of Valencia but took the other bait that was dangled before him. Intent on rescuing Madalena first and freeing the country second, Galavant started a journey to Valencia with Isabella and his squire Sid ("Pilot"). During their travels they ran low on funds and Galavant was forced to enter a jousting tournament to win the prize money. Unable to pay an entrance fee for the event, Sid put up the Jewel of Valencia as collateral much to Isabella's dismay ("Joust Friends"). After winning the tournament they continued their journey but ran afoul of bandits led by Peter the Pillager.
The land based pirates captured them and found the Jewel in Isablella's purse hidden amongst her "girl supplies". The trio eventually overcame their captors and Galavant personally handed the gem back to Isabella ("Comedy Gold"). After Galavant's party finally arrived in Valencia, Isabella was overcome with guilt. She met with King Richard and attempted to change their arrangement offering him the Jewel if he set her parents free and spared Galavant's life. Richard refused her offer and instead re-asserted his threats that he would kill her mother and father. Isabella reluctantly followed his orders and allowed Galavant to walk into a trap where Richards guards were waiting for them. The king regained possession of the Jewel of Valencia and threw Isabella, Galavant and Sid into the castle dungeon ("Completely Mad...Alena").