I'm pretty sure the movie is from the 70's (it sure has the look and feel anyway). I remember a group of people going on a hike, perhaps on a mountain, but with trees (but not a dense forest, more open sky). I think they run into someone with some magic powers or something? I think this man they run into makes a girl look at something and he seduces her/puts her under a spell. at some point there is some kind of clay animated/stop motion dragon/dinosaur creature, but I believe it's just in their head (or due to magic). at the end, one of the main male characters is taken away to a padded room/insane asylum. That's about all I remember. And I think the person that directed it was somebody's special effects director. Like they did special effects at some point for some one big (like Spielgberg)
Thanks!