First, I created a dark blue background by brush

Use brush to make the sketch of grindylow as I imagine. The last image will be quite different from the sketch but the sketch can provide me the general look to find the suitable sources

Now I make the body and the head of grindylow using the body and head of the iguana. The body was distorted using warp tool (free transform). The head was added separately and rotated a bit, then distorted to fit the sketch

The face was constructed from the face of the iguana, the mouth was distorted a bit to fit the sketch

I want to change the location of the eye, so I used a part of the face, copy to the new layer and blended back to the area of the eye using warp tool and eraser.

The eye was blended to the higher location (it was flipped vertically before blending). Use dodge and burn tool to change the light on the eye (because it was flipped)

The jaw of the iguana was placed under the mouth but the size was kept bigger compared with the face.

Add the right hand from the iguana source, distort it to make the correct perspective. Shadow, color, light was adjust using clipping mask layer with overlay, color, multiply blending modes.

Add the paw from the source of alligator paw. Because the color, brightness and skin pattern of alligator are different from the iguana, the paw need some adjustment.
I changed the color by making a clipping mask layer with color blending mode, painted with yellow, orange and yellow-green brush (similar to the skin of the iguana).
Make one more clipping mask layer with overlay mode and painted with black and white brush to make the shadow, light area.
Make one more clipping mask layer, draw normally with dark brush to change the skin pattern a bit to make it similar to the iguana.

The result...

The middle part of the body was copy to the new layer, distorted and blended to lower part of the grindylow to make the hips.

The leg was made from the other sources

The same technique was applied, similar to the paw, to blend the leg to the body

The tail was taken from a lizard

Use puppet warp tool to bend the tail and connect it to the body

Because the skin pattern of the body and the tail are very different, I use the skin from the body of the lizard to change the skin on the body of grindylow

The same technique as mentioned before. I used eraser with very low opacity (3-4%) to slightly erase the transition area between the two skin. The spikes on the back of the iguana was erased.

There are still some difference among the parts of the grindylow, so I used clipping mask layers with multiply, overlay, color blending mode and change the shadow, brightness and color on the whole body

The tail of the chameleon was used to make the "horn"

After some adjustments to fix the skin, duplicate and resize the horn to make the smaller ones.

The fins from the fish were used to make grindylow's fins.

Make the background. Place the corals to the left corner, slightly erase the unnecessary area. Use soft brush to paint the water with close color to the coral area.

Use soft brush to paint the light beams and the bright water surface.

Duplicate the painted layer of the water surface, apply chrome filter then blend it to the original layer by overlay blending mode.

Add the first wrecked ship

Add the second wrecked ship

Make the doll attached to the naval mine from the sources

Use the cylinder behind the doll to make the belts on it's waist and neck. Draw the bubbles by the bubble brushes. Distort the mine a bit to have the round shape

The remaining sources were added to the scene. Some duplication, motion blur and light, color changes were made to finish the work.