The Sapphire Dragon is a Shen Gong Wu that first debut in the episode 'Night of the Sapphire Dragon', where it was found in the middle of a volcano, covered in soot.
The Sapphire Dragon is malevolent, quiet, cunning, and a frightful being of chaos. It turns everyone around it into sapphire slaves, and its power grows the more victims it has under its control. According to the Scrolls, it is the most dangerous of Shen Gong Wu, as unlike most, it has a mind of its own, and cannot be controlled. Once activated, it will turn anyone it sees - good, evil or indifferent - into sapphire, and will even turn on the one who activated it.
The dragon and its sapphire slaves are weak against soot. The only way to return the dragon to its dormant state and free its victims is for the dragon to be covered in soot or lose in a Xiaolin Showdown.
The Sapphire Dragon has two forms. In its wu form, it is a miniature statue of a sapphire dragon appearing to be curled up, with its tail as a makeshift handle, and light green eyes.
In its true form, the Sapphire dragon has a long, serpent-like body. It has dark blue scales and a ligh blue underbelly, with cyan eyes seen on its wu form, and long whiskers.
When activated, the Shen Gong Wu releases a sapphire dragon that will seek out victims to turn into sapphire statue, which it does by breathing magical fire onto them. After an undetermined amount of time, these statues will then animate, and will be under the dragon's bidding. Because of how it chooses its victims to turn into sapphire indiscriminately, the Scrolls advise strongly that the Sapphire Dragon should be used as an absolute last resort; if all other solutions are exhausted.
In its dragon form, the dragon has demonstrated that it has some degree of sentience and intelligence. For example, its quite cunning as it hides around the temple while the monks search for it in 'Night of the Sapphire Dragon', ambushing Clay in the courtyard. In 'The Dream Stalker' it deliberately chose to petrify a monkey and a rhino in order to fight against Kimiko and Clay during a showdown, and has been demonstrated to be somewhat aware of Showdown riles (although it can be argued that it borrowed this knowledge from Raimundo, as in this episode it was part of his psyche).
It first revealed itself inside an active volcano. At the time it was known as the Black Dragon due to being covered in soot. It was activated by accident when Kimiko wiped off a portion of soot. Strangely for a Shen Gong Wu the dragon had a personality; it did not try to attack Dojo until he clawed its underbelly which apparently hurt. It would later return fused with the Shadow of Fear by Hannibal Roy Bean as a sapphire jellyfish. It would ultimately be defeated when Hannibal was ejected from Raimundo's mind and lost control of the Shadow of Fear.
(That time around, the dragon wasn't covered in soot when Hannibal discovered it and it activated on command, so the writers must have pacified it between then and its first appearance.)
The Sapphire Dragon has his own soundtrack, that can be heard when his true identity, as not a simple Shen Gong Wu, is revealed.
The Sapphire Dragon bears a stark resemblance to Qing Long/Seiryu, the Azure Dragon of the East.