The Cave Worm can be found on disc 4, once you've acquired the White Boa. You need to head north of the world map, near the Gohtzan continent. Ram the ice covering the small opening along the lining of the continent to enter the cave.
Suggested average level is 50+, with lots of skill slots for anti-ailment skills.
The Cave Worm causes status ailments, so equip as much of the anti-ailment skills as possible. Equip Bio Rings on Kaim and Seth and keep on casting supportive magic (Powerus or Healing) with Sarah and Ming. The monster casts Complete Defense which nullifies ALL attacks and magic, so you have to wait this out and heal up until the effect wears off. Keep it up and it shouldn't be too hard. If you have Forceus at this point for any of your mages, use it.