It's probably already been discussed or something, but I can't find the thread..so..Where do you make magic items in chapter 3? Is it just that gnome Colmarr's secret machine that pumps out potions? Or is there a place to make magic armour and weapons? If someone could tell me where, that'd be great, thanks.

Talk to the blacksmith in the shop in town. He can make these items for you and will tell you what you need to make each item.

It's in a building identified with a pin that says "Trading Center" or something similar. It's in the north part of the city. The dwarf inside will forge the items for you.