When your Pran reaches level 5 it will want to talk to you.
You should go back as quickly as possible to Regenshein town because your Pran will not gain exp and it will be a waste.

In Regenshein town look for Theletar Bariel (map coordinates 3557,610) near the Auction House.
Talk to him and inquire about the [Evolution] into human form quest
He will tell you about the Pran not getting exp with it's current form and must evolve.
Then he will ask you for a Fairy's Holy water.
At this time you still don't have it so he will give you a quest to acquire it.
The Fairy's Holy water is dropped by Violent Moguns and Corrupt Moguns around Donowa Farm (upper right of Verband map). You only need 1 but the drop rate is really low so you have to kill a few moguns (either Violent Moguns or Corrupt Moguns) for it to drop. //I got mine from Corrupt Mogun at the edge of Donowa Farm.//
(I'll post the Violent Mogun's pic next time.)

When you get the Fairy's Holy water it will look like a potion bottle with a different color (sorry I couldn't get a screenshot of it because I was uber excited to get my Pran evolved XDD). Then report back to Theletar Bariel and let your fairy get evolved (^__-)
Voila!! Evolution success!! ≧w≦)/ ＊わい！＊