The Happy Mask Shop is an optional questline available once you show Zelda's Letter to the guard watching the gate to Death Mountain Trail in Kakariko Village.
This side quest will have you working as a salesman looking for clients interested in buying different types of masks, ultimately rewarding you with a few hundred rupees and the Mask of Truth (and some extra optional rewards along the way).
Step #1 - Keaton Mask
This will be the first mask available and the start of the Happy Mask Shop questline. Head to Hyrule Castle Town and enter the Happy Mask Shop, north-east of the fountain.
Talk to the shopkeeper and borrow the Keaton Mask, which has a going rate of 10 rupees.
Once you have the Keaton Mask, head to Kakariko Village and talk to the same guard mentioned earlier, the one at the north gate leading to Death Mountain Trail. He'll buy the Keaton Mask for 15 rupees, leaving you with a profit of 5 rupees after paying its going rate.
Step #2 - Skull Mask
Return to the Happy Mask Shop at Hyrule Castle Town and this time choose the Skull Mask.
Optional Reward
Before selling the Skull Mask, you can go to the Forest Stage while wearing it to obtain a bigger Deku Stick Bag. The Forest Stage can be found in the Lost Woods by taking a very specific path.
From the Kokiri Forest entrance, go right > up > right > up > left, then drop down the hole in the ground surrounded by bushes. Stand on the circular wooden platform while wearing the Skull Mask until the small Deku Scrubs notice you. Move closer to the big Deku Scrub and wait until it notices you too, and you will be rewarded with the bigger Deku Stick Bag.
Once you have the Skull Mask, head to the Lost Woods and take the first exit to the left (starting from the Kokiri Forest entrance) to find the Skull Kid, who will buy the mask for 10 rupees.
Step #3 - Spooky Mask
You know the drill by now: return to the Happy Mask Shop, and this time borrow the Spooky Mask, which has a going rate of 30 rupees. You can sell it to the boy who can be found wandering around Kakariko Village's Graveyard during daytime. He'll pay 50 rupees for it, giving you a profit of 20 rupees.
Step #4 - Bunny Hood
Go back to the Happy Mask Shop to borrow the next mask, which is the Bunny Hood (going rate 50 rupees). You'll sell this one for a whopping 200 rupees, so make sure you have at least the first rupee bag upgrade if you don't want to waste all your rupees making room for it.
Talk to the Running Man to sell the Bunny Hood. True to his name, he can be found running around Hyrule Field.
Step #5 - Mask of Truth
You're almost done! Return one last time to the Happy Mask Shop and talk to the shopkeeper, who will tell you that your work is complete. As a final reward, he will let you have the Mask of Truth. Additionally, he'll let you check out any of the masks, including 3 new ones: the Zora Mask, the Goron Mask and the Gerudo Mask.
Mask of Truth Optional Reward
As with the Skull Mask, you can also get an optional reward by going to the Forest Stage while wearing the Mask of Truth. This time, you'll receive a bigger Deku-nut Bag.
