In keeping with Robotnik's general ethos regarding environmentalism, the doctor is using the caves as a dumping ground for kilotons of radioactive slurry produced by the Fortress' cruel industry.
The level encompasses the half-submerged caves at the foot of Mount Mobius.
The Toxic Caves is a disgusting, slimy dungeon, filled to the brim (literally) with horrible green ooze which is all kinds of deadly.
