In Gaultree Forest in Yorkshire, the leaders of the rebel army--the Archbishop of York, Mowbray, and Hastings--have arrived with their army. The Archbishop tells his allies he has received a letter from Northumberland in which he says he will not be coming to their aid.
A soldier, returning to the camp from a scouting mission, reports that King Henry IV's approaching army is now barely a mile away. The army is being led by Prince John, the king's younger son; the king, who is sick, is still at Westminster. The scout is immediately followed by the Earl of Westmoreland, an ally of King Henry who has been sent as a messenger. Westmoreland accuses the Archbishop of improperly using his religious authority to support rebellion; the Archbishop replies that he did not want to, but he felt he had no choice, since King Henry was leading the country into ruin and the rebels could not get their complaints addressed. Westmoreland tells the rebels that Prince John has been given full authority to act in the king's name and is willing to grant their demands if they seem reasonable. The Archbishop gives Westmoreland a list of the rebels' demands, and Westmoreland leaves to show it to Prince John.
While the rebels wait for Westmoreland to return, Mowbray voices his fear that, even if they do make peace, the royal family will only be waiting for an opportunity to have them killed. However, Hastings and the Archbishop are sure that his fears are groundless.
Westmoreland returns and brings the rebels back with him to the royal camp to speak with Prince John. The prince says that he has looked over the demands and that they seem reasonable; he will grant all the rebels' requests. If they agree, he says, they should discharge their army and let the soldiers go home.
Very pleased, the rebel leaders send messengers to tell their soldiers that they can go home. They and Prince John drink together and make small talk about the upcoming peace. However, as soon as word comes from the rebels' messengers that their army has been scattered, Prince John gives an order to arrest Hastings, Mowbray, and the Archbishop as traitors. When they ask how he can be so dishonorable, Prince John answers that he is not breaking his word: he promised to address their complaints, and he will. However, he never promised not to kill the rebels themselves. He then gives orders for the rebels to be taken away and executed.
Meanwhile, elsewhere in the forest, one of the departing rebels--Sir John Coleville of the Dale--runs into Falstaff, who has finally made it to the field of battle. Recognizing Falstaff, Coleville surrenders to him. (Most people are now afraid of Falstaff because they falsely believe that he killed the famous rebel Hotspur at the Battle of Shrewsbury.) Prince John enters the scene and Falstaff presents his captive to him. Westmoreland appears to tell the Prince that the army is withdrawing; Prince John sends Coleville off with the other rebels to execution, and he announces he will return to the court in London because he hears his father is very sick. Falstaff heads off to Gloucestershire in order to beg some money from Justice Shallow.