Lancelot Gobbo, Shylock's servant, stands before Shylock's house, having a very serious and hilariously muddled conversation with himself about his desire to quit his job. He says his conscience tells him to stay with Shylock out of loyalty, but some fiend in his brain is telling him he should run away. He reasons crookedly: since his conscience tells him to stay with the devil incarnate, clearly the thing to do is run away, loyalty be damned.
Just then Old Gobbo – Lancelot's dad, who is mostly blind – shows up looking for his son. He can't tell that he's talking to his son, in front of Shylock's house.
Lancelot decides to have some fun with his father before he reveals his identity. He teases that the old man should speak of "Master" Lancelot, not just Lancelot. Old Gobbo is quick to point out that young Gobbo is no Master Lancelot, but just plainold Lancelot, the son of a poor man.
Lancelot continues to mess with the poor old blind man, telling him the "funny" joke that his son is dead.
Lancelot finally reveals himself to be Old Gobbo's son, and there's much ado about how much he's grown. Old Gobbo has brought Shylock a present, and Lancelot suggests his dad give the present to Bassanio instead, as Bassanio is Lancelot's new chosen master. Being Shylock's servant has left him in such a state that you can count each of his ribs (i.e., he's not paid enough to eat properly).
Bassanio enters the scene and hears a convoluted attempt on the part of both Lancelot and his father to get the younger man employed by Bassanio. Bassanio cuts off all the idiocy by announcing that Shylock's already given over Lancelot's service to him, though Lancelot will be leaving a rich Jew to serve a poor gentleman. Lancelot insists he's OK with this, and Bassanio sends Old Gobbo off with young Gobbo to buy some fancy new threads.
Bassanio is then left to talk with the newly arrived Graziano. Graziano insists that Bassanio must take him along to Belmont when he goes to woo Portia. Bassanio is hesitant.
Graziano promises he'll be on his very best behavior and won't do anything to ruin Bassanio's chance of winning Portia. Then they agree to put off all good behavior until tomorrow, as tonight is a night for celebration.