Old Oak has been possessed by the magic of the crystals the ants have piled around him. You'll have to fight some sense into him. You can easily shoot upwards at him with arrows, but he has a lot of HP, so if your stronger characters use melee, you'll need to climb the tree and attack his face at the top.
The wolves keep coming as long as Old Oak is alive so don't worry much about them. Just keep your party healed and attack Old Oak himself.
Once you defeat Old Oak, you'll get a bunch more crystals, then you'll need to head to the East exit and toward Stone Crater. You can take this opportunity to go back to any of the previous areas as you now have the chopping ability and can get some of the chests you couldn't get before.
The enemies in this boss battle are wolves and Old Oak himself.