This story comes from two sources. The reveal in the Sorcerer's Weekly interview that Levy's worst mission was infiltrating the home of a scary witch and the scene in OVA1 where she can be seen going on a mission with Erza.
"Eh?" Levy blinked. "You want me to go on a mission?"
Levy was ten years old and was standing before Erza Scarlett, who had recently turned thirteen. She was the youngest guild member considered strong enough to go on missions by herself. All of the girls looked up to Erza – devil-child Mira notwithstanding – but she was a slave-driver with ridiculously high expectations.
"It is about time you had your first mission," Erza replied with a severe nod. "All of the other girls have completed at least one. Cana, Lisanna, Bisca, Laki."
"But I'm not strong," Levy mumbled shyly. She was not a confident girl at all. Everyone else was growing so much faster than her, their magical powers developing well. She would usually retire to the library for solitude and to lose herself in some fictional world.
"That may be true, but the mission that I have acquired is perfect for your talents."
"And what is it?" Levy asked, curiosity blooming. Erza smiled brightly and placed a hand on the younger girl's shoulder.
"If I told you, you'd run away screaming!"
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"Erza, please slow down," Levy called as she tried to keep up with the older girl as she marched through Magnolia towards the train station. It was early in the next morning, and they'd just been waved off from Fairy Hills by the owner, Hilda.
"You have to walk faster! It'll help your legs grow up big and tall!" Erza asserted fiercely, not slowing for an instant.
"Ehh? No, that's not true! Lamarckian Evolution was disproved centuries ago!" Levy objected, recalling the huge section of science books in the library that she'd devoured.
"Oh? See, that sort of knowledge is why you'll be great for this mission. All those windbags at the guild are only good for beating stuff up. I had to separate Natsu and Gray again yesterday. I wouldn't mind a few more quiet types like yourself."
"What about Fried? He's often in the library."
"Ah? Spending time alone with a handsome boy?" Erza teased.
"No! That's not what I meant!" Levy cried. "And he's been hanging around Evergreen a lot lately anyway."
"Come on, we're almost at the station," Erza declared, pushing right past the subject.
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"Wait, we're doing what!?" Levy cried.
"You're on the train now, it's too late to run," Erza replied matter-of-factly. Levy was beginning to feel despair settle over her. Spending large amounts of time with Erza was trying in of itself, but this mission sounded far too scary for her!
The mission was to sneak into a witches' house in the middle of the forest at night. Apparently she had cast some kind of curse on the client and they needed to find the counterspell in her house. Levy would be useful in case there was any kind of decryption issues. Witches often wrote in druidic languages.
"I-I can't!" Levy wept.
"Have you done something like this before?" Erza asked, looking puzzled.
"Of course not!"
"Then how do you know that you can't do it?" Levy stopped, unsure of what to say. Erza looked smug, having expected Levy to walk into her verbal trap. She didn't argue any more, simply because she was smart enough to know that nothing could possible sway the stern redhead.
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The forest was so scary! Levy was trembling like a leaf. Which was perhaps appropriate with all the leaves around her, blowing in the wind. The wind was scary too, making a horrible whistling sound. The owls were making scary sounds too. And the dark was scary.
The darkness was so scary.
"Levy!"
"Ahiiiii!" She squealed, curling into a ball with her hands over her head.
"You have to move faster!" Erza chastised. "There is nothing scary in this forest!"
"There's a witch!" Levy objected in a thin, high-pitched voice. "That's something to be scared of!"
Erza sighed patiently and reached down to hold Levy's hand. The smaller girl felt a bit braver with the powerful redhead leading her on. Any bravery left her however, as they approached the witches' house. It was a country mansion, isolated in the forest, with high windows and gothic architecture.
"Alright Levy, here's the plan. See that open window on the ground floor?" Levy tried to listen to Erza's words to help her fear. Yes, she could see it. She nodded, unable to talk. "Good. You slip in through the window and try to find the counterspell."
It took a full ten seconds for Erza's plan to process through Levy's brain.
"Wait, I'm going in by myself!?" She shrieked.
"Of course. You're small. Much better at sneaking than me." Erza had a way of making it sound like the most obvious thing in the world.
"B-but the witch!"
"If there's trouble, shout! I'll bust right on in!"
"Why not do that first?"
"Because this is your mission. You need to get over your silly fears."
Silly!? That was literally an evil mansion with an evil witch inside who had literally cursed someone! Levy was literally a tiny ten year old girl with little to no magical power and literally zero experience! Literally!
Suddenly, Erza shoved her forward and Levy stumbled out of the bushes and into the clearing around the mansion. She panicked, rushing towards the house so that she could hide against the wall. She'd be seen in the open.
"Good!" Erza hissed from a distance. "Now just get inside!"
Levy looked up at the window. It was high up for her, but with a bit of scrabbling she managed to get her arms over and drag herself through the small opening. She fell through with a muffled squeak, belatedly realizing that she hadn't checked the room first. But thank the heavens, there was no one inside.
She found herself almost paralyzed by the choking darkness. She hated it so much, the way it clung to her, the way it deadened her sight. She crept slowly out into the corridor and began inching down. Remember the mission; find the counterspell and get out. Nothing scary about that at all.
Except the evil witch!
She fought down a whimper and entered the next room in line. On high shelves there was an enormous array of bottles containing a massive amount of ingredients. Roots, leaves, multi-coloured liquids and a few parts that looked like they might have come from animals.
Eye of newt and toe of frog, wool of bat and tongue of dog.
She should really stop reading so much. It was fueling her imagination. She left the room and froze, hearing footsteps approach down the corridor. She hurried back into the room and crawled into a low cabinet, shutting the door behind her.
She trembled in sheer terror as she heard footsteps right outside the door, the witch muttering to herself as she perused the ingredients on the shelves above her. Don't open the cabinet, don't open the cabinet. Apparently satisfied, the footsteps went away. About five minutes and a few tears later, Levy summoned the courage to head back outside.
She passed a door hurriedly as she heard the witch working inside at some cauldron. A cauldron!? They actually did that!?
"Now, why aren't the ingredients bonding?" The witch asked in a tired voice, raspy and harsh. There was a splosh as another ingredient added to the concoction. Levy approached the next door and crept inside. There was a desk inside and Levy could see a book on the top. She crawled up onto the chair and opened the book, hoping to find the information she was looking for.
It was an interesting book, full of ingredients and recipes and potions and spells. Levy felt her fear vanish as she kept reading; back doing the one thing she was happy doing. She sat down and let her legs dangle as she happily became lost in a literary world…until a scrawny hand grabbed her by the scruff and lifted her clean out of the chair. She could feel evil red eyes boring a hole in her back and began to squirm and panic.
"What are you doing in my house!?" The witch snapped.
"P-please! I'm sorry, please don't eat me!" Levy cried.
"Eat you?" The witches' voice pitched such that Levy could practically see the lips curl in amusement. "Why my dear, you're all skin and bones! But then again, maybe you'd make a nice ingredient for my broth!"
"No! Please help me, Erza!" Levy shrieked with all of her might.
"Erza? Erza!?" The witch growled. Levy was swung around as the witch marched back through her house. To Levy's bewilderment, the front door opened and they went out into the cold night air. She was jabbed at the bushes. "Erza! Does 'this' belong to you?"
Erza emerged from the bushes, looking bashful. "Sorry Porylusica."
"Every year, I come to my summer home for a little peace and quiet, and every year you bring some newbie here! Is this some kind of hazing thing for you?"
Levy could only dangle there, trying to follow the conversation. Erza knew the witch? As Erza and Porylusica began to argue, Levy began to realize that she'd been tricked. Emotionally frayed and very young, Levy did the only thing she could think to do and bawled her eyes out.
"Don't cry you little runt!" Porylusica scowled, her trademark lack of empathy showing.
"Levy, you were supposed to show how brave you could be!" Erza protested.
"I was brave!" Levy sobbed in between her tears. "I went in and did my best!"
"Your best? You were sitting in my study reading!" Porylusica exclaimed.
"Oh, Levy," Erza sighed, covering her face. "That's…so like you, but that's bad. I was supposed to go back and tell Makarov that you were progressing well, but now I have to tell him that you made an enormous mistake. How could you be so stupid?"
"Don't act so authoritarian when you're here breaching my privacy!" Porylusica barked. She finally dumped Levy onto the grass, tired of holding the girl. "You've spoiled my experiment! I was trying to create a cure for the pox currently passing through this town, but you interrupted me! I'll have to start over from scratch and I still haven't found the problem with the potion!"
"The Taneka root…," Levy mumbled. Porylusica stopped from her root and bent down to examine the blue haired girl. A long moment passed.
"Go on," the witch said in unusually kind voice.
"I noticed you took a few bottled from your storage room. When I was reading your book, I saw that one was called Taneka root. It said that it can block the qualities of other ingredients due to an enzyme in the root. You have to extract it first."
"Well I'll be. I'd clean forgotten," Porylusica admitted. "I haven't used the stuff in years and I didn't think to re-read the page. You're a clever and curious child, aren't you?"
"I'm not clever," Levy replied shyly, rubbing her eyes, red from crying.
"You may have just saved me days of pointless work," Porylusica stated. She held out a hand. "Would you like to come and help me make the potion?"
"Yes!" Levy thrilled. The trio began to walk back to the house, but the witch turned on Erza.
"You can sleep outside!"
"What!?"
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Porylsuica watched the small girl as they worked together. She was not exactly a kind woman, but it was hard to be angry with someone so innocent and curious. She asked intelligent questions of the process and helped to stir the cauldron, face beaming with the amazement of it all.
Later on, she relented and allowed Erza inside, taking the redhead to one side.
"Listen, you," she jabbed a finger in her face. "That girl may not be big or strong, but she's got brains and curiosity, something your blockhead guild sorely lacks. I took this cure on as a mission for Fairy Tail, and I'll allow Levy a portion of that reward. That means that you can tell Makarov that she has successfully completed her first quest."
"Who knew you were so kind?" Erza said with a confident smile, which vanished as a broom appeared in the witches' hands. A beating rained down upon her head.
"I'm not! I just want this damn guild to have some thinkers in it! People smart enough not to tempt my wrath!"
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As they arrived in Magnolia, Levy marveled at the little purse full of jewels. It hadn't been much, but it was the first money she'd ever earned. She felt so proud.
"You know, Levy, I was never going to send you in by yourself if it was actually dangerous," Erza said. "I'm not some sort of monster."
"But Natsu and Gray have all of these stories…"
"I'm not a monster!" Erza stopped shouting and softened. She ruffled Levy's hair. "I wouldn't let anyone hurt one of these strands on your head. None of my nakama's."
Levy smiled.
"So, have you thought about what you're going to spend your first jewels on?"
"No! I have no idea what to buy!"
"Well, maybe a dress or a…"
"I mean, there's a copy of Newton's Principia in the window but it's pricey. Maybe a storybook instead or should I get another spellbook, or that cookbook that was highly rated, or maybe the biography of Jura Neekis or…"
And from that day on, Magnolia's book shop owners were very wealthy men.