The Udjat Eye is an accessory item found locked inside the Big Chest, which is opened with a Key.
The chest containing the eye is guaranteed to appear somewhere on the 2nd, 3rd or 4th level of the Mines.
It is the first of four special Ancient Egyptian artifacts required to reach the City of Gold.
The Eye functions much like the spectacles, allowing you to see which blocks of terrain contain jewels, and also reveals some gold veins that were previously hidden.
Additionally, it makes loose treasure lying on the ground easier to see by superimposing it over the terrain so that it does not get obscured by rocks or grass.
It does not reveal items that spawn inside walls however, so does not make the spectacles completely redundant when acquired.
Besides this, the main purpose of the Udjat Eye is to help the Spelunker find the hidden entrance to the Black Market located somewhere in the Jungle.
As you approach the location of the entrance, the Eye will start blinking in your inventory and making a squeaking sound, which increases in frequency the closer you draw to the hidden door.
The entrance itself must be revealed by destroying the block in front of it with either bombs or a mattock.
The "Eye of Udjat" is another term for the Eye of Horus, an ancient Egyptian symbol representing the protection of the gods.