Before I'll tell you where to find the liquid rainbow item in Diablo 3, I want to say that the secret level in Diablo 3 or the "Pony level" can be a tough mystery at the beginning when you start picking up weird items like "black mushroom", what is it interesting is that you need to gather five items in order to create the staff of herding which will actually allow you to travel to the pony level but in my opinion the most annoying item ever for the staff was the liquid rainbow because you need to have a double luck to say so in order to get it. This item can make most people rage, because a friend of mine made about 20 runs to find the cave, and then the chest wasn't there and he needed to continue making those runs to find the liquid rainbow.
So, how to find the liquid rainbow location in Diablo 3? It all starts in the second act but you will only have a chance to trigger the "event" if you passed the "Blood and Sand" quest, so if you already finished act 2 just go to main menu, change quest and select "The Black Soulstone", after this teleport to the "Path to Oasis" waypoint, NOT the "Daghular Oasis". Be advised that the liquid rainbow spawn is all about luck. You will find the two possible spawn places for the npc in the picture. Once you found Zaven the Alchemist location, he will open a door and there, in the Mysterious Cave you will have to find the Mysterious Chest but beware that he chest is not a 100% spawn! Just try and try and you will find it sooner or later. I took me about 10 runs to find the liquid rainbow.