When the worm comes out of its hole, shoot the claw-like hands at the end of each tentacle-like arm. They should eventually turn red. Continue firing at them and they will snap off. When it snaps, the worm will go back in its hole. Run inside after it, but stop at the edge so you don't fall in the lava. Look around to find the body of the beast, then look closely to see a big eyeball-like thing wiggling around. Shoot it until goes in, then the arm that snapped will regenerate and come back out. Shoot the arm and, when it snaps, go back in and shoot it again. When the arm stops coming out, go for the other arm and repeat the process. Note: If you have a rocket launcher, use that and the battle will over much quicker.