Hieronimo enters with a dagger and a piece of rope. He has come to see the king in order to demand justice for Horatio. The implements he has in his hands, however, are those commonly used for suicide, and he seems to contemplate taking his own life. But he decides that if he does not avenge Horatio, no one will.
The King of Spain then arrives, along with the Ambassador, the Duke of Castile, and Lorenzo; Hieronimo hopes that his king will help avenge Horatio's death. But the king is preoccupied with affairs of state, since the Portuguese ambassador has returned. He brings the news that the Viceroy has accepted the marriage arrangement first proposed by the king in Act II, scene iii: that Balthazar and Bel-Imperia be wed, thereby uniting the royal lines of Spain and Portugal. The wedding ceremony will be held at the Spanish court, and the Viceroy will attend in person. Furthermore, as soon as the rites are performed, the Viceroy will abdicate his kingship so that Balthazar may take his place, and Bel-Imperia will become queen. As mentioned before, their offspring would then become the royal line of both Spain and Portugal.
The Ambassador also mentions that he brings the ransom to be paid to Horatio for the release of Balthazar. Upon the mention of his son's name, Hieronimo seems to go into a fit: he begs the king for justice, but the king, not knowing that Horatio has been murdered, does not understand what his Knight-Marshal is talking about. The king demands an explanation; Hieronimo leaves in a fury, and Lorenzo explains that Hieronimo is filled with such pride for his son, and such excitement about the prospect of the huge ransom, that he has gone insane as a result. The king is full of pity for Hieronimo and tells the Duke of Castile to go and give Hieronimo the ransom. When Lorenzo suggests that Hieronimo be removed from his post, the king refuses, saying that such an action would only increase Hieronimo's instability and that he will carry out his Knight-Marshal's judiciary functions until Hieronimo's mental health improves.
Again, Hieronimo's soliloquies give us access to his troubled interiority. And this interiority is again wracked, by a question. "This way or that way?" he demands, and the two paths are clearly defined. The first is the path of suicide, as symbolized by the "poniard" (dagger) and rope he carries in his hand. The dagger and rope were the traditional instruments of suicide in Elizabethan times, and thus the recognized symbols for the act. His tossing aside of them physically represents his rejection of suicide as an option. For an Elizabethan audience, this tossing aside would be a moment of great psychological importance. It is Horatio's decision to take "that way", the way of revenge, and "justice for Horatio's death."
But the path of revenge and justice has suddenly acquired horrific attributes. It is a path through hell, "down by the dale that flows with purple gore," a path that leads to a judge who sits "upon a set of steel and molten brass, / And twxit his teeth he holds a fire-brand, / That leads unto the lake where hell doth stand." Kyd's ornately rhetorical style, full of alliteration may seem artificial when used to represent Hieronimo's sense of growing madness, counteracting the impression of Hieronimo as someone driven to his wit's ends. But it may help to convey the danger and seriousness of the task Hieronimo is undertaking. We may ask why Hieronimo finds this path so dangerous and difficult, and why he does not simply run to the king with his information.
But there are severe obstacles to such an easy resolution of his problem, obstacles presented by social class and of diplomacy. Lorenzo is the son of the Duke of Castile, the King's brother, and so is the nephew of the king. Balthazar is the son of the Viceroy of Portugal, with whom the king is negotiating an important diplomatic treaty. The king's own interests and familial relations make the possibility of Hieronimo finding justice seem remote, especially to an Elizabethan audience, who would be much more conscious of the importance of class differences.
To emphasize the king's interest in matters other than justice for Hieronimo's son, the king is shown entering with the Portuguese ambassador, arranging the details for Balthazar's wedding to Bel-Imperia. He does not know (implausibly, since he is the only one) that Horatio has been murdered and does not even see Hieronimo. Lorenzo keeps Hieronimo out of the King's sight, just as he has kept Horatio's murder out of sight. In effect, Lorenzo has placed a veil between the king and Hieronimo. This veil is only pierced by Hieronimo's sudden descent into madness upon hearing his son's name. Ironically enough, it is the king who speaks it, believing Horatio to still be alive and ordering that Balthazar's ransom money be sent to him. But this madness is real, not contrived, and so Hieronimo loses the self-control necessary to make his case. Lorenzo is again easily able to shield the king from the knowledge of Horatio's death and his own complicity in it.
But the king is not completely insensitive to Hieronimo, and in fact has great affection for his Knight-Marshal. He demonstrates this by rejecting Lorenzo's suggestion that Hieronimo be dismissed from his post. It makes one wonder what the king would have done if Hieronimo had been able to speak to him coherently. Again, notice the irony of the situation: the king unwittingly prompts Hieronimo's madness and then forgives him for it, preventing himself from learning of his friend's real problem. This is one of those ironies that will contribute to the eventual tragedy by convincing Hieronimo that he has no recourse to the law. The law is embodied in the king, and the king cannot, will not, or simply does not hear him.