Add a new line at a specific position in a text file.

You should not open your file twice, try this:

FileStream fileStream = new FileStream(fileName, FileMode.OpenOrCreate, FileAccess.ReadWrite, FileShare.None);
StreamWriter streamWriter = new StreamWriter(fileStream);
StreamReader streamReader = new StreamReader(fileStream);

another think is logic for inserting line, maybe easier way is to copy data line by line into new file, insert new part when needed and continue. Or do it in memory.

To add line to the end you can use FileMode.Append or do your own seek

This will add the line where you want it. (Make sure you have using System.IO; and using System.Linq; added)

public void CreateEntry(string npcName) //npcName = "item1"
{
    var fileName = "test.txt";
    var endTag = String.Format("[/{0}]", npcName);
    var lineToAdd = "//Add a line here in between the specific boundaries";

    var txtLines = File.ReadAllLines(fileName).ToList();   //Fill a list with the lines from the txt file.
    txtLines.Insert(txtLines.IndexOf(endTag), lineToAdd);  //Insert the line you want to add last under the tag 'item1'.
    File.WriteAllLines(fileName, txtLines);                //Add the lines including the new one.
}