At Olivia's house, Sir Andrew is becoming angry and frustrated. He is making absolutely no progress in winning the affections of Olivia; he is convinced that she bestows more favors on "the count's serving man" (Cesario) than she does on Sir Andrew. He tells Sir Toby and Fabian that he saw Olivia and Cesario in the orchard, and it was plain to him that Olivia is in love with Cesario. Fabian disagrees; he argues that Olivia is only using Cesario as a ploy to disguise her love for Sir Andrew and thereby make Sir Andrew jealous. Fabian thinks that Sir Andrew should have challenged Cesario on the spot and "banged the youth into dumbness." He laments the fact that Sir Andrew has lost his chance to prove his valor before Olivia's eyes. Now Sir Andrew will "hang like an icicle on a Dutchman's beard" unless he redeems himself by some great and glorious deed. Sir Toby agrees. He proposes that Sir Andrew challenge Cesario to a duel. They themselves will deliver the challenge. Sir Andrew agrees to the plan and goes off to find a pen and some paper, and while he is gone, Sir Toby and Fabian chuckle over the practical joke they have just arranged. They are sure that neither Sir Andrew nor Cesario will actually provoke the other into a real duel.
Maria arrives onstage with the news that Malvolio "does obey every point of the letter." He is sporting yellow stockings; he is cross-gartered, and he "does smile his face into more lines than is in the new map . . . of the Indies."
Essentially, this scene serves to advance the subplot, which will culminate when the cowardly Sir Andrew will try to engage Cesario in an actual duel. The first part of this scene reveals that Olivia's love for Cesario is even apparent to someone as dense as Sir Andrew. The mere fact that he has made no progress in his courtship with Olivia does not surprise us. What is astonishing, however, is that he still thinks that he has a chance to win the affection of Olivia. She is obviously far too sensitive and intelligent for this foolish and zany knight, but Sir Andrew is nevertheless jealous of the favors which he has observed Olivia giving to Cesario. To add unity to the scene, we hear that Malvolio is completely following the instructions in the forged letter. Thus, if Sir Andrew is foolish in his belief that he will obtain Olivia's hand, then Malvolio is extremely egotistical to also think so. And as we will see by his dress and demeanor, he will ultimately be revealed as being as foolish as Sir Andrew.