It's right across the way from Dalan's house in Lowtown.

DON'T OPEN IT!

I restarted about 2 hours into it because I saved right after I opened it. There are 4 different areas in the game where if you open a certain treasure chest(s), you will not be able to get arguably the most powerful Weapon in the game; the Zodiac Spear. Like Jowy said.

The one across the little path from Dalan's house is the first that you SHOULD NOT OPEN!