Yes, the Infamous Vat Control Panel. To get to it you have to go down the stairs to the right of the Tentacled One! Not a nice thought, I know....
If you're having trouble with this, here's how to avoid the brute, more or less:
When you regain control of Jack, run into the room to the right and crouch behind the crates. As soon as Jack says he should get going, stand up and walk to the stairs on the right and go down. Never mind, I know it's freaky, but if you don't stop for even a second you will get to the end of the catwalk. Go down the ladder. DOn't stop -- move to the end of the lower walkway and up the ladder at tyhe end. Keep going until you get to the end of that catwalk and then crouch in the very right hand corner. The Tentacled One will not reach you there and you can regain sanity and heal. If you've just kept moving you should get to this point with no damage at all.
The Vat Control Panel is there, and it is very hard to activate it without getting badly injured. You have to move forward towards the panel but not close enough for the tentacle to reach you, and then when the tentacle withdraws rush to the front of the panel and hit the button. It's not that easy, and in the end I had to settle for Jack being "almost dead" and used up a lot of medical supplies. But once you've done this bit the rest of this section is not so hard.
No fancy-pantsy Elven dagger-twirlers. Just tough guys.