Roderigo bids Antonio farewell. Antonio objects, but Rodorigo argues that he would not wish upon Antonio his--Rodrigo’s--fate which is cruel and which Antonio would be forced to share if he were to tag along. Antonio insists on knowing where Rodorigo is going. Rodorigo is reluctant to say, but in regard to Antonio’s gentle manners (he would not pry), and in regard to what Antonio has done for Roderigo (he has saved Rodorigo from drowning), Rodorigo not only reveals his destination, but his other secrets--among them his true identity.
Rodorigo is actually Sebastian, taking after his father Sebastian of Messalina. He has a twin sister who he has lost at sea and who he believes is dead. As to his destination, Sebastian will be going to Orsino’s court in Illyria.
Though he has many enemies at Orsino’s court, out of his admiration and concern for Sebastian, Antonio, regardless of Sebastian's objections, will accompany him to Illyria.
Malvolio intercepts Cesario (who is returning to Orsino’s court) to return a ring that Malvolio understands to be a token of the Duke’s love that Cesario had given Olivia. When Cesario refuses to take the ring back, Malvolio leaves, flinging the ring on the ground and saying that if the ring is worth the picking up then to pick it up otherwises to let it lie there to become the property of whoever picks it up.
For a moment, Cesario is flummoxed; he hadn’t given Olivia any ring. Then it dawns on him that Olivia may have fallen in love with him--Cesario--and that the ring may be her token of love. The signs were there: the way Olivia had stared at him and the way she spoke distractedly. Dismayed, Cesario wonders what will come of all this, that is to say his/her--Cesario’s/Viola‘s--lovesick affection for the Duke and now Olivia’s lovesick affection for Cesario/Viola.
Though the hour is late, Sir Toby and Sir Andrew find themselves up. They see no reason but to be merry so they call for drink and food to be served when they are joined by Feste. Naturally, Feste himself is in a festive mood, and for a small payment he obliges Sir Andrew and sings. Maria enters the scene to disparage Feste’s singing, however, prompting Sir Toby to pick up where Feste left off. Anon, Malvolio arrives to chide and harangue, prompting Feste and Sir Toby to sing in tandem and thereby to intensify the reveling that Malvolio finds so unbecoming. Malvolio leaves, warning Maria that she would do well not to cooperate with the revelers or else. Not taking kindly to the threat, Maria proposes to the revelers a prank that they might play on Malvolio. She will forge a letter in Olivia’s handwriting the contents of which when perused by Malvolio will have him think that Olivia is in love with him. The proposal is unanimously agreed to, and seeing that it is so Maria urges her fellow pranksters to forego reveling tonight and think of the fun to come tomorrow, citing Olivia’s current uneasy state of mind on account of her encounter with the Duke’s latest, young advocate, earlier today, as all the more reason for doing so. Still, Sir Toby and Sir Andrew decide to have a few drinks before retiring. Sir Andrew is especially in need of them as he senses his prospects of successfully wooing Olivia dimming by the day.
Still in a melancholy mood, Orsino calls for a song that he particularly liked and that he heard sung the night before. While the singer of that song, who is somewhere nearby, is searched for, Orsino discourses unto Cesario about the nature of love. Orsino argues that because a man is by nature more inconstant than a woman that he ought to love a woman younger than his years, thereby compensating for the disparity. Anon, Feste, the singer of the song that the Duke so relishes, arrives to perform the song. It is a song about unrequited love, about being buried midst yews and cypresses, and about dying unattended and unmourned. The Duke thanks Feste, pays him, and dismisses him. Once more he commissions Cesario to plead Olivia on his behalf. Cesario tries to deter Orsino but to no avail.
Sir Toby, Sir Andrew, and Fabian (one of Olivia’s servants) conceal themselves as Maria drops her forged letter on the path where Malvolio walks. Talking to himself, Malvolio fancies himself the married Count to Olivia and by extension Sir Toby’s superior. The presumption so angers Sir Toby that he has to be restrained lest his and his fellow pranksters’ cover be blown. By and by, Malvolio finds the letter and begins to read. He is convinced the letter is written by Olivia, and by degrees he is persuaded that the object of the writer’s affection is himself, Malvolio. By the letter’s end Malvolio is so thoroughly taken by the supposed import of the letter that it is only a matter of time before he makes an utter fool of himself before Olivia and every one else. Sir Toby, Sir Andrew, and Fabian eulogize Maria for her brilliant prank and they all look forward to the moment when the prank will yield a barrel of laughs.