Things are starting to heat up—as they usually do in Act 3. Benvolio and Mercutio are hanging out as usual, trading insults and mocking the Capulets.
Trouble materializes in the form of Tybalt, who is trying to find Romeo so he can get back at him for crashing the Capulet party.
Tybalt provokes Mercutio by saying "Mercutio, thou consortest with Romeo," which means "You're a known associate/friend of Romeo." It also kind of implies that Romeo and Mercutio are sleeping together.
Mercutio responds that he's going to make Tybalt "dance" with his "fiddlestick" (his sword) and yes, there's a sexual innuendo at work here, swords being phallic symbols and all.
Benvolio, who wants everyone to be friends, warns the guys not to fight in public.
And then in stroll the just-married Romeo.
Insults are exchanged, but Romeo remembers that Tybalt is his new wife's cousin, so he turns the other cheek.
Mercutio finds this totally shocking—actually dishonorable—so he offers to fight Tybalt instead.
So they fight. Romeo tries to intervene, but Tybalt stabs Mercutio.
Romeo and Benvolio assume that Mercutio hasn't been badly hurt because he starts joking about his wound—but it's no joke. He's dying.
He then gives us the famous line, "A plague on both your houses," and then turns to BFF Romeo and says, "Why the devil came you between us? I was hurt under your arm," he says. A minute later, he is dead.
Romeo blames himself for Mercutio's death and laments that his love for "sweet Juliet" "hath made [him] effeminate" [a girly wimp]. So, he decides to man up.
By challenging Tybalt to a duel.
And killing him.
Benvolio tells him to run away before the Prince captures him, and Romeo gets away just before all the citizens of Verona miraculously show up at the scene of the duel.
The Prince arrives and is, uh, a little angry. Remember how he said that anyone caught fighting would die?
After Benvolio explains what happened, Lady Capulet demands to Romeo be killed.
But Lord Montague argues that Tybalt got what was coming to him for killing Mercutio.
The Prince comes up with a solution: because Tybalt started the fight, he'll spare Romeo's life. But he rules that Romeo must be banished from Verona.
Man, and he was just getting ready for his honeymoon.