The scene switches back to Spain, where Bel-Imperia and Horatio are walking together in her garden. Bel-Imperia was Don Andrea's lover, and she asks Horatio to tell her how he died. So Horatio recounts the story of Andrea's death for the third time in the play, now emphasizing how Andrea was outnumbered by Balthazar's horsemen, thrown from his horse, and then quickly finished off by Balthazar. Then Horatio continues with how he took Balthazar prisoner and retrieved Andrea's corpse. He then describes how he took Andrea's lifeless corpse back to his tent, futilely attempting to revive his friend with his tears and then finally giving Andrea the funeral rites he deserved.
Horatio also recounts how he took a scarf from Andrea and now wears it in remembrance of his friend. Bel-Imperia reveals that the scarf was originally hers and that she gave it to Andrea when she last saw him before he went off to war so that he could wear it in battle as a keepsake. She asks Horatio to wear it now, for both her and Andrea. Horatio then tells her he must leave to go seek Balthazar. When he is gone, Bel-Imperia confesses that she now loves Horatio but still wishes to avenge the death of her first love Andrea. This she will do through her love for Horatio, since we now learn that Balthazar, the man who slew her husband, is in love with her.
That man, Balthazar, soon enters with Lorenzo, who asks his sister Bel-Imperia why she looks so glum, for the prince has arrived to see her. She then exchanges several lines with the prince, in which his love and her barely repressed hatred become apparent. Bel-Imperia finally tires of Balthazar and leaves, but as she does so, she drops a glove, which Horatio, coming in again, picks up off the ground. Bel-Imperia tells him to keep it. Lorenzo then consoles Balthazar, telling him that women are fickle. Horatio, Lorenzo, and Balthazar then leave to attend the feast being held at the Court for the Portuguese ambassador.
The King and Portuguese ambassador both enter. The Portuguese ambassador, upon seeing Balthazar, remarks how the Viceroy of Portgual mourns his son. Balthazar replies that the only thing he has been "slain" by is the beauty of Bel-Imperia. The King remarks upon his newfound goodwill for Portugal, now that they have paid their tribute to him. He then wonders aloud where Hieronimo, the Knight-Marshal was supposed to provide entertainment for the guests, is.
Hieronimo then enters, followed by actors who perform a masque that he has prepared. The masque consists of three knights, each with an escutcheon (a shield with armor). Hieronimo then brings in three kings, each of whom has their crown stolen by one of the knights. When the King asks what the scene is supposed to mean, Hieronimo explains that each king and knight represents a scene from Spanish and Portuguese history, in which either Portugal or Spain were defeated by "little England." The first knight represents Robert, Earl of Gloucester, who during the reign of King Stephen subdued the "Saracen" King of Portugal. The second knight re-enacts Edmund, Earl of Kent's conquest, during the time of King Richard, of the Christian king of Portugal. And the third represents John of Gaunt's capture of the King of Castile (the royal family that later went on to assume the monarchy of Spain). After each Portuguese defeat, the Spanish king makes patronizing remarks to the ambassador, to the effect that Portugal shouldn't be upset by its latest defeat at the hands of Spain, having already been defeated by "little England." After the third act, the Portuguese ambassador makes a remark that the Spanish should not be too arrogant in their victory, having also been defeated by England. The King then proposes a toast, and the guests leave to commence their feast.
Don Andrea accuses the ghost of not fulfilling his promise; instead of witnessing Balthazar's brutal death, he instead has seen the prince feast and be merry. Revenge reassures Andrea that Balthazar and Lorenzo's current happiness will, before the play is over, turn into misery.
These scenes serve to introduce the heroine of the play, Bel-Imperia. They also mark the emergence of revenge as a theme of concern to the characters, specifically to the character of Bel-Imperia. Her mourning and grief over the death of Andrea provide motivation for her hatred of Balthazar (and possibly for her love of Horatio). This lust for revenge will set up the groundwork for the murder of Horatio in Act II and, thus, commence the main storyline of the work. The lust for revenge is symbolized by the bloody scarf that Bel-Imperia gives to Horatio, as it links both her and him to the vengeful ghost of Don Andrea, and will also come to symbolize the need for Hieronimo to avenge Horatio's murder.
Ironically enough, the scarf also symbolizes the love that Bel-Imperia and Andrea shared. And it now symbolizes both Horatio and Bel-Imperia's love, as well as the memories of their dead friend. The scarf is thus a multi-valenced symbol. In other words, it symbolizes many different things and intertwines them in so doing. The scarf is a symbol of an ironic fact: that love and memory easily become hatred expressed as a demand for revenge and justice, hatred of those who have killed the loved one, and in so doing, reduced him or her to just a memory. For Bel-Imperia, the emotions of love and hatred are so intertwined that she views her love for Horatio as a form of revenge, an expression of hatred, against Balthazar, the murderer of Andrea.
In Bel-Imperia, Kyd presents us with a complex heroine. She is at once loyal and devoted to her lost lover Andrea, yet already embarking upon a new love. And her motivations in her love are somewhat suspect as well, when she remarks that loving Horatio can be seen as a form of revenge against Balthazar. She is, however, aware of some of these contradictions within herself and always appears intelligent and strong, especially in her desires for revenge and justice. Kyd shows Senencan influence once again, in his use of the Senecan device of stichomythia, a line-by-line exchange between one character and another, in this case taking the form of a dialogue between Balthazar and Bel-Imperia. The device serves to do two things: 1) highlight Bel-Imperia's wit (enhancing her identity as a strong, likeable, interesting character) and 2) bringing out the conflict between Bel-Imperia and Balthazar. The contrast Kyd develops in these lines is clear: Balthazar is madly, foolishly in love with Bel-Imperia, while Bel-Imperia can scarcely conceal her loathing for him.
At this point in the play, Andrea might very well seem to be an unsympathetic character. His complaint that revenge has not been served—that the living are, in other words, too happy and enjoying themselves too much—reeks of selfishness and pride. But he does currently represent two key emotions with which the audience can sympathize. First is the anger and despair at realizing that one's death matters very little in the grand scheme of things and that the world will go on, and may even improve, after one has left it. The second emotion is impatience. This is something the audience may very well feel in common with Andrea; we were promised with a tragedy, but instead we now seem to have a not-so-funny romantic comedy, played out against the story of diplomatic negotiations between sixteenth-century Spain and Portugal. Kyd certainly takes his time with exposition. But in Kyd's defense, he is setting up the dramatic machinery necessary for his play; the rising action preceding the first climax, or turning point, has already begun with these scenes and will continue up until Horatio's murder.