The Tregaron Elephant has long had its place in local folklore, and is thought to have been buried behind the town's Talbot Hotel after dying on tour.
The small-scale excavation started on Saturday morning and the hunt for clues about the animal's final resting place will continue until next Thursday.
About 10 people from the University of Wales Trinity St David are taking part.
The elephant was said to have fallen ill after drinking contaminated water in the Ceredigion town in 1848.
It is believed to have been part of Batty's Travelling Menageries, a circus troupe which entertained widely in the area that year.
Continue reading the main storyThere's been quite a crowd here. About 30 people have been in and out watching the dig in the beer garden”End Quote Dafydd Watkin The Talbot Hotel, Tregaron Dafydd Watkin and his partner Tracy Batt are licensees of the Talbot Hotel, and they said about 30 people had watched the start of the dig.
Mr Watkin said the archaeologists were working in the hotel's beer garden, but had found nothing so far.
"They started digging this morning and they'll be here until next Thursday," said Mr Watkin.
"There's been quite a crowd here. About 30 people have been in and out watching the dig in the beer garden, and we're expecting more people over the weekend.
"Before the dig started the local councillor Catherine Hughes said a few words."
The dig has started in the beer garden at The Talbot in TregaronMr Watkin said he was not worried about losing trade because of the dig, and added that it would probably draw in more customers.
The dig is part of a wider project by the University of Wales Trinity St David's archaeology department.
Dr Jemma Bezant of the School of Archaeology, History and Anthropology is heading it up.
She said last month that the project was about celebrating the story of the Tregaron Elephant and less about "finding out the truth".
She added that it was likely the effort would generate more questions than answers.
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