Around the Round Table, the various knights tell the tales of their prowess at arms. As he watches and listens, Hank decides that there is something lofty, sweet, and manly about these men, but also that they are simplehearted and lacking in brainpower.
Sir Kay is brought to the fore when six prisoners come forward and, to the disbelief of most present, announce that they have been conquered by him. Sir Kay then tells the tale of how they were captured by Sir Launcelot (the tale that the frame narrator read in Malory), as well as other tales of Sir Launcelot's adventures, exaggerating the whole time.
At that point, Merlin — a very old, white-bearded man — stands "upon unsteady legs, and feebly swaying his ancient head [surveys] the company with his watery and wandering eye." Clarence groans and tells Hank that Merlin is about to tell the tale that he always tells when he has gotten drunk. Merlin does, putting most of the court to sleep in the process. His story is about how King Arthur got his sword from the Lady of the Lake.
Sir Dinadan is the first to awaken after Merlin's tale, and he amuses himself by tying metal mugs to a dog's tail. This arouses the other dogs, who chase the first; the noise then awakens all the knights, and they all have a good laugh. After that excitement dies down, Sir Dinadan strings together a number of jokes that Hank has already heard about thirteen centuries later; they were old even in the sixth century.
After this, Sir Kay gets up to tell of his feat at arms. Hank says, "He spoke of me all the time in the blandest way as 'this prodigious giant,' and 'this horrible sky-towering monster,' and 'this tusked and
taloned man-devouring ogre,' and everybody took in all this bosh in the naivest way." The other facts of the encounter are likewise stretched. After this tale, Arthur sentences Hank to die at noon on the 21st.
There is a discussion of what to do about Hank's enchanted clothes; when Merlin has the sense to suggest that they strip him, they do so immediately. Hank is embarrassed, but everyone else discusses his physique with no hesitation or concern.
Finally, Hank is carried off to the dungeon, but he is so tired that he falls asleep almost as soon as they leave him to himself in the cell. When he awakens, he is sure that everything that has happened to him is a dream. Just then, however, Clarence comes to visit him, which dispels the notion.
After he finally gets it through his head that this is no dream, Hank asks Clarence to help him escape; Clarence, however, thinks that such a feat is impossible because there are so many guards. In addition, Merlin has put a spell on the dungeons, and no one in the kingdom would think of helping anyone escape. Hank, hardheaded Yankee that he is, hoots at the idea of a magic spell, but that gives him an idea: He tells Clarence that he is a magician himself. Furthermore, he claims to be a much more powerful magician than Merlin, and he sends Clarence to let the court know that there will be trouble if anything happens to him.
While Clarence is gone, Hank worries about whether or not it will occur to the boy that a magician wouldn't have to send a boy with this message. (It doesn't.) He also decides to use the eclipse as his piece of magic.
When Clarence returns, he reports that the message had an effect, but that Merlin scoffed because the disaster was not named. Thus Hank sends Clarence back with the message that he will blot out the sun if he must.
In Chapter 3, we are introduced to many of the "Knights of the Round Table." We must remember that when Hank Morgan carried his manuscript to the "frame narrator" that the frame narrator was reading from Sir Thomas Malory's Le Morte D'Arthur; Twain himself was exceptionally fond of this old volume and used certain episodes from Malory's book.
The dual perspective of Camelot and its royalty continues in Chapter 3 when Hank Morgan observes: "There was something very engaging about these great simplehearted creatures, something attractive and lovable. There did not seem to be brains enough in the entire nursery, so to speak, to bait a fishhook with." But these are the charming, innocent, and lofty people whom he loves, and yet he will be determined to destroy large numbers (25,000) of them later in order to have his own way — that is, in order to force civilization on them.
Chapter 3 also introduces Merlin, who will function as the antagonist to Hank Morgan. They will be not just rival magicians, but they will also be rivals in all ways.
Chapter 4 emphasizes the childish aspects of the knights — the games that amuse them are games that children still play today — games such as tying a can on the tail of a dog and then laughing to see the dog run, frightened of its own tail. Furthermore, Hank Morgan has to also listen to some dull, flat jokes that he has already heard thirteen hundred years later, only to discover that they were dull and flat in the sixth century also. In both the jokes and in the tales that the knights narrate, there is so much gross exaggeration in them that Hank Morgan finds it incredible that anyone would believe the stories. Yet it is part of the charm of the innocents that they would believe anything that is told to them.
At the end of Chapter 4, Hank Morgan's clothes are removed, at the suggestion of Merlin, and they all comment upon his physique. He is extremely embarrassed both by his nakedness and even more by the language that the ladies use to describe his various naked parts. Later, we discover that essentially Hank Morgan is not just a Yankee, but a Yankee prude. He chides the court for its foul speech, he feels (later) that it is improper to ride through the countryside alone with Sandy, and even though he is fully clothed underneath his armor, he feels that it is indecent to remove his armor in front of her.
One of the great ironies of the novel is found in Chapter 5. One of Hank Morgan's desires is to rid the country of superstitions. Yet, in order to gain control, he will use superstition to frighten the people into acknowledging his magical powers. Thus, Hank will use his practical Yankee knowledge of eclipses in order to perform his first miracle; the contrast between the practical and the miraculous is one of the comic devices which Twain uses throughout the novel.