The Carved Dragon is a gift to Merlin from his father, Balinor. During Merlin's time with Balinor, the two were talking one evening next to a warm fire as Balinor carved an object. Merlin did not pay much attention to the wooden figurine until the next morning when it was left on the ground next to him. It was then revealed to be a wooden dragon. Merlin smiled as he looked upon the lovely creation (The Last Dragonlord).
After his father died, Merlin kept the little dragon. He was found weeping in his room and holding the figure by Gaius.