Stone Dragon of the temple, I summon you... from rock to flesh, aid the family Tsao in this hour of need!
― General Tsao[src]
The Stone Dragon was a dragon originally made of stone and imbued with dark magic. After being summoned by a member of the Tsao family, of which it is a symbol, it turns to flesh and is able to breathe fire and fly. It has a very flexible neck that allows it to twist its head 180 degrees, powerful claws, and a fiery tongue.
When the team's operation goes wrong, General Tsao summons the dragon from the stone, crying "...aid the family Tsao in this hour of need!" It emerges from the sea where the temple had fallen and captures Penelope before flying high into the air. Sly Cooper attaches to fireworks to soar up to it, and engages the dragon in battle. Sly eventually defeats it and rescues Penelope.
However, despite losing to Sly, the dragon continues to fly on, suggesting it can never truly be beaten. This is further reinforced by Tsao, who refers to the dragon as only being "thwarted." Whether or not the dragon returned to stone is unknown.