First, make sure you have the maximum amount of potions and tonics before you fight Dagon. Reserve your MP for the team attack and use the Holy Lightning skill whenever you can, then pull back your partner so your MP doesn't decrease. Dagon also has a habit of sucking up all the water.
In the Forest of Doom, the following strategy is an easy way to defeat Dagon. First, use Jonathan only since Charlotte will only hinder you and lower your MP whenever she gets hit. Swim-jump to the surface and start dive-kicking Dagon's head. The first kick will bounce you up and give you a second chance to kick him, so keep kicking him when you can. Coordinate the jumps if you are ahead of the water. Also, be careful with the buoys Dagon drops. If you get hit and fall to the floor, use the Holy Lightning attack and immediately jump back to the surface. When Dagon starts sucking water, take the opportunity to dive-kick him as fast as you can since your kicks won't be slowed down by water. Remain above his head most of the time to will defeat him easily while suffering minimal damage.