In Olivia’s garden, Feste is wittily fooling around Viola. They are talking about the nature of words and how they can be used to manipulate. Viola realises that Feste is actually wise enough.
Olivia meets Viola and others leave. Olivia is infatuated with Viola who has camouflaged herself as Cesario. She starts suggesting her feelings for Cesario (Viola). She finally declares her love to Viola.
Sir Toby, Sir Andrew, and Fabian are discussing the favor shown to Cesario (Viola). Sir Toby is wondering how to win Olivia’s love for him. Maria comes to tell them about watching Malvolio who has obeyed everything foolish she put into that letter and now looks very funny.
Sebastian and Antonio are on a street and Sebastian has now accepted Antonio’s loyal service after all that hesitation. Sebastian wants to go around the town and visit famous places before they take up lodging. Antonio decides a place for them to stay and let Sebastian go around the town.
Olivia asks for Malvolio and Maria informs that he is coming but in a strange manner. Maria comes with Malvolio. He is smiling to which Olivia questions. Malvolio is awkward but sure of everything written in that letter.
Olivia offended of his sight, asks Maria to take him away. Malvolio is thinking of all that was written in the letter. Maria enters with Sir Toby and Fabian and Malvolio talk with them as instructed in the letter which was actually meant to make him look more foolish.
Sir Toby decides to put him in a dark room and declare him mad after a while. Sir Andrew meanwhile challenges Cesario (Viola) to fight with him. Viola (Cesario) and Olivia enter while Olivia is still persisting in her feelings for her (Cesario).
After Olivia leaves, Sir Toby and Fabian somehow draw Viola into the sword fight which she is trying to avoid. Antonio enters at the very moment and disrupts their fight.
While Viola is talking to Antonio, she gets to know that he is actually confusing her for Sebastian. So she senses that her brother is surely alive.