Location: north-northwest of Leyawiin, near the Elsweyr border (link goes to the Daedric Shrines map at UESP Wiki)
Minimum Level: 2
Offering: lettuce, yarn and a Lesser Soul Gem
Objective: mess with the Khajiiti at Border Watch
No one will mark this shrine on your map for you, but it's close enough to the road between Bravil and Leyawiin that you can find it quite easily. Along with Azura's, this is the earliest Daedric quest you can get if you need an item for the "Blood of the Daedra" part of the Main Quest. The three items needed for the offering are very easy to find (just start opening crates in the towns), although the Lesser Soul Gem might take a little more hunting than the others.
Like Sanguine's quest, this is very much a "mess with mortals" kind of thing. The Khajiiti at Border Watch are a very peaceful community. Too peaceful in Sheogorath's opinion. You need to go make an apocalyptic prophecy come true in order to make their lives interesting. So travel to Border Watch and find Ri'Bassa (the local shaman). You'll need to ask him about the "K'Sharra Prophecy". When asks why you want to know, tell him that you're a travelling scholar (which makes him like you more). You'll need to get his Disposition up to 60 or more before he'll give you the whole story about the prophecy.
The prophecy talks about the end of the world and there are three signs that it's coming. The first sign is a plague of vermin. Ri'Bassa tells you that this means Rats and that he keeps Rat poison handy just to make sure that it doesn't happen. The second sign is famine; livestock dying off and tells you that the six sheep in the pen on the south side of town are kept healthy and well-fed to make sure that one doesn't happen, either. The third sign is fear and he won't tell you anything about it, no matter how high you pump his Disposition.
Now that you know about the prophecy, you'll need to make the first two signs come true (don't worry about the third sign - Sheogorath will take care of that). So explore the town. The Border Watch Inn is a nice enough establishment. The proprietor, S'thasa, maintains a cheese museum, which includes cheeses from all over Cyrodiil. Her collection even includes a very rare Olroy cheese, whose aroma is so strong that it would attract Rats from miles away if it weren't kept locked up in the display case. So either pick S'thasa's pocket to get the key or wait until she's asleep to pick the 5-pin lock on the display case that has the Olroy cheese.
Once you have the cheese, step outside the inn and put it in the cooking pot next to the front steps. It won't take long before a bunch of non-agressive Rats invade the town. Ri'Bassa goes ballistic and sets out Rat Poison at the top of the steps. The Rat Poison will kill all of the Rats eventually, but you can help it along if you'd like. Once all of the Rats are dead, pick up the poison and head for the livestock pen. It's time for the second part of the prophecy.
If you surveyed the area, you'll have found five sheep out of the six that Ri'Bassa told you about and they should be in the pen. The sixth sheep shows up after the Rats come in. Put the Rat Poison in the feeding trough (or just kill them with your weapons if that's your thing) and you'll get a message from Sheogorath that you should go to the center of town to watch the rest of the fun. Go to where the path crosses the foot of the stairs and you'll be frozen in place. The sky turns red, thunder rolls, and flaming dogs start falling from the sky (I guess that's the fear part - dogs in a town full of cats). Once the fun is over, go back to the shrine to collect your reward: Wabbajack.
Wabbajack turns any creature into another creature for 20 seconds. It will not work on NPCs or on anything you've already used it on (only one change to a customer). For low-level characters this could be a problem because the new creature will be drawn from a random list that includes some pretty nasty stuff. For high-level characters it could be helpful since it would be very difficult to make a high-level encounter even more high-level. But if you like to mess with NPCs, you can turn their pets and livestock into something else and they'll attack it. Note that this counts as an assault in the eyes of the guards. But if that kind of fun is worth 40 golds, go for it.