After he leaves, Maria tells Toby, Andrew, and the Clown how she plans to trick Malvolio into thinking Olivia is in love with him by penning love letters to him in Olivia's hand. Separately, Andrew tells Toby he is running out of money while he tries to win Olivia, and if he fails, he'll blame Toby. At the Duke's palace, the clown sings songs of love, while Viola and Orsino discuss the qualities of love.

 Orsino bids Viola approach Olivia again with his greeting, even though Viola insists Olivia will not be moved. In Olivia's garden, Toby, Andrew, Olivia's servant Fabian, and Maria hide and listen to Malvolio pompously dream of his "impending" marriage to Olivia, the idea placed in his mind by Maria's deceptive letters.

Viola comes back to Olivia's house to talk to her for Orsino, but Olivia declares to Viola that she loves her, Andrew again announces he's leaving, but Toby and Fabian again convince him to stay, convincing him he should duel Viola to impress Olivia to love him. Separately, Toby admits to Fabian he only keeps Andrew around to use his money for alcohol. Sebastian and Antonio arrive in Illyria and Sebastian decides to tour the town, then meet Antonio at the Elephant Inn. At Olivia's house, Malvolio approaches Olivia and makes advances to her, but she thinks him mad. When Toby, Maria, and Fabian appear, Malvolio treats them like they are base and he is royal, causing them to laugh uproariously behind his back. Andrew appears with his outrageously stupidly worded challenge to Viola and Toby promises to deliver it. Toby comes to Viola and tells her that Andrew, a most fierce and dreaded knight, has a quarrel with her and will duel her. This greatly fears Viola, but Fabian promises to try to calm Andrew. Separately, Toby tells Andrew that Viola is fierce and unstoppable.

Toby gets the two to duel, both fearing the other, when Antonio appears and breaks it up, thinking Viola to be Sebastian. Officers of the Duke then appear and arrest Antonio by order of Orsino. Antonio, thinking Viola to be Sebastian, asks for the money back that he lent Sebastian earlier. Viola, not knowing what he means, denies she knows him, angering him and calling her disloyal. The officers lead him away while Viola realizes the confusion and finds new hope that Sebastian is alive. After Viola leaves, Toby and Fabian egg Andrew on further to once again duel.

 

Outside Olivia's house, the clown follows Sebastian around thinking him Viola insisting his name is Cesario and that Olivia desires to see him. This annoys Sebastian and he bids the clown to leave. Andrew then appears and strikes Sebastian, but Sebastian strikes back at Andrew, scaring him. Toby, trying to keep Sebastian from Andrew himself duels Sebastian, until Olivia breaks it up. Sebastian immediately falls in love with her and they depart into her house together. In another part of the house, Malvolio is kept prisoner in a cell in the basement by Toby and Maria. The clown pretends to be a priest and visits him, but will not help him, and, rather, makes fun of him and calls him mad. In Olivia's garden, Sebastian ponders the amazement of the finding of his new love Olivia, then she and he go with a priest to the church to be married.

At Olivia's house, the Duke arrives and entreats the clown to let him see Olivia. While waiting, Antonio shows up with the officers and explains how he rescued Sebastian from the sea then helped him in the duel. Orsino tells Antonio he is a pirate and not to be trusted since he helped steal one of Illyria's greatest battleships in the past. Olivia arrives and immediately starts doting on Viola eventually calling her husband, shocking Viola and enraging the Duke. The Priest arrives and confirms the marriage between Olivia and Cesario. Andrew then appears and swears Cesario struck Toby alongside the head, wounding him, but Viola denies it. Toby appears, mad at Viola, but leaves to be bandaged. Finally, Sebastian appears and greets all, while both twins are amazed and delighted that the other is living. Sebastian promises to keep his marriage to Olivia, and the Duke vows to marry Viola. Malvolio is brought forth from the cell and all learn of the trick played on him. Fabian and the Clown admit they, Toby, and Maria did it all in jest, and in return for Maria's help, Toby married her. However, Malvolio vows to be revenged on them all. The Duke calls his servants to calm Malvolio, and all depart happily.