Viola, still in disguise as Cesario, has returned to Lady Olivia’s house to bring her another message of love from Orsino (the errand that Orsino sends Cesario on at the end of Act II, scene iv). Outside Olivia’s house, Cesario meets Feste, the clown. Feste jokes and makes puns with him. Cesario jokes with comparable skill and good-naturedly gives Feste some coins for his trouble. Feste goes inside to announce the arrival of Cesario to Olivia.

Sir Toby and Sir Andrew arrive in the garden and, meeting Cesario for the first time, make some rather awkward conversation with him. The situation is made awkward by the fact that Sir Andrew behaves foolishly, as usual, and both men are slightly drunk. Sir Toby invites Cesario into the house, but before they can enter, Olivia comes down to the garden, accompanied by Maria. She sends everyone else away in order to listen to what Cesario has to say.

Once alone with Cesario, Olivia suddenly begs him not to give her any more love messages from Orsino. She lets Cesario know how deeply in love with him she is. Cesario tells Olivia as politely as he can that he cannot love her. Olivia seems to accept this rejection, but she realizes privately that she cannot so easily get rid of her love for this beautiful young man, even if he scorns her. Cesario swears to Olivia that no woman shall ever be mistress of his heart and turns to go. But Olivia begs him to come back again, suggesting desperately that maybe Cesario can convince her to love Orsino after all.

Back in Olivia’s house, Sir Andrew tells Sir Toby that he has decided to leave. He says that he has seen Olivia fawning over Cesario in the orchard, and he seems to realize at last that Olivia is not likely to marry him. But Sir Toby—who wants to keep Andrew around because he has been spending Sir Andrew’s money—tells Sir Andrew that he ought to stay and show off his manliness for her. Fabian helps Sir Toby in his persuasion, assuring Sir Andrew that Olivia might only have been teasing him and trying to make him jealous. Sir Andrew agrees, and Sir Toby encourages him to challenge Cesario to a duel, in order to prove his love for Olivia.

Maria comes in and reports that Malvolio is behaving like an absolute ass—he has been doing everything that the letter has asked him to do. He is wearing yellow stockings and crossed garters and will not stop smiling—all in all, he is more ridiculous than ever before. Sir Toby and Fabian eagerly follow Maria to see what is going on.

Elsewhere, in the streets of Illyria, we find that Sebastian and Antonio have at last arrived at their destination. We learn that Antonio is not safe in Illyria: it seems that Duke Orsino’s men are hostile to him, for many years ago Antonio was involved in a sea fight against Orsino in which he did them much damage. But Antonio’s love for Sebastian has caused him to defy the danger and come with Sebastian to Illyria.

Sebastian is not yet tired, so he and Antonio agree that Antonio find lodging for the two of them at an inn. Sebastian, meanwhile, will roam the streets, taking in the sights of the town. Knowing that Sebastian doesn’t have much money, Antonio gives Sebastian his purse so that Sebastian can buy himself something if he spots a trinket he likes. They agree to meet again in an hour at the inn.

Once again we meet Feste the clown, and once again we notice that beneath his nonsense, he is obviously intelligent. In fact, Viola is inspired to comment on this after her conversation with Feste: “This fellow is wise enough to play the fool, / And to do that well, craves a kind of wit,” she notes (III.i.53–54). She realizes that a good clown must be able to judge the personalities and moods of all the people with whom he interacts, and to know when to talk, what to say, and when to keep quiet. Her remark that “[t]his is a practice / As full of labour as a wise man’s art” (III.i.58–59) reminds us of Feste’s earlier comments about his own professionalism: “Well, God give them wisdom that have it; and those that are fools, let them use their talents” (I.v.13–14). There is an irony here—Feste is skilled as a fool, yet he is also one of the play’s most intelligent characters.

Olivia’s character, meanwhile, has undergone a startling shift. When we first meet her, she is deep in mourning, dismissive of romantic love, and somewhat close in spirit to the dour Malvolio. Indeed, her early grief seems as self-indulgent as Orsino’s lovesickness. But Viola has won Olivia over; she has replaced her grief with infatuation, and Olivia now willingly gives herself over to the zany shamelessness that fills the play. She behaves in a remarkably forward fashion in these scenes: when they are speaking alone, for instance, she takes Cesario’s hand—a very unusual action for a noblewoman to perform. By the end of the scene, Olivia is reduced to begging Cesario to come back again, saying that perhaps she will change her mind about Orsino after all. Passion has conquered dignity and order, at least in Olivia’s heart.

Of course, while Viola has broken the spell of grief and has convinced Olivia to give herself over to romantic desire, she herself cannot fulfill Olivia’s yearnings. She can only reply “I pity you” (III.i.115) to the noblewoman’s pleadings, and offer vague explanations for her rejection of Olivia—“I have one heart, one bosom, and one truth, / And that no woman has, nor never none / Shall mistress be of it save I alone” (III.i.148–151). Her reliance on rather abstract terms (“one heart,” “one truth”) reflects the emotional distance that she maintains from Olivia.

Antonio’s love for Sebastian, meanwhile, remains as strong as ever, as he risks his life to pursue Sebastian. His remark that he follows Sebastian out of his “desire, / More sharp than filèd steel” (III.iii.4–5) has the same violently passionate twinge as his earlier comparison of separation from Sebastian with “murder” (II.i.30). He seeks also to protect Sebastian, owing to his “jealousy [i.e., worry] what might befall your travel, / . . . in these parts . . . / . . . / Rough and unhospitable” (III.iii.8–11).

Antonio’s attachment to Sebastian comprises not only concern for his safety but also a willingness to spend money on him (he even entrusts his purse to him). “[Y]our store / I think is not for idle markets, sir,” Antonio tells Sebastian, a statement with a double meaning (III.iii.45–46). The more apparent meaning is that Sebastian doesn’t have enough money to spend on trivial things, but the words also suggest that Sebastian is too good to spend time with just anyone and deserves the best. Once again, Antonio’s passion for his male friend—and the words he uses, like “jealousy” and “desire”—strongly suggest that he feels an erotic attraction to Sebastian.