The Madonna of Happiness is an event item found by Leon and Helena while in Tall Oaks Cathedral. It can be found right to the altar in the church.
Along with Madonna of Charity it must be used to open the secret passage in the church for further completion of the game. Leon and Helena must place those statues simultaneously to specific round shelves located on the 2nd floor of the church.
When it is picked up, Leon comments on how the item clearly stands out among the other items, saying that the Madonna isn't a part of the decoration.