Back at Gloucester's house, Edmund's scheming is coming along nicely. He hears that Regan and her husband, Cornwall, will be paying an unexpected visit to his father (Gloucester) and decides to factor that into his plans.
Also, Edmund hears from Curan, a courtier, that there are rumors flying around about a dispute between Cornwall (Regan's husband) and Albany (Goneril's husband).
Edgar comes in, totally bewildered by his situation. Apparently he's about to be arrested for plotting against his father, a crime which is news to him.
Edmund tells Edgar he had better flee for his life, since his father's men are coming for him.
Furthermore, Edmund asks him whether he hasn't said nasty things about the Duke of Cornwall regarding his dispute with the Duke of Albany.
Edmund says that Cornwall is on his way to Gloucester's castle (where they are), which should worry Edgar, though Edgar says he hasn't been bad-mouthing anybody.
Edmund announces he hears Gloucester coming, and Edmund suggests he and Edgar pretend to fight so that no one suspects that Edmund has been helping his brother. They fake sword fight for a bit, and then Edgar scurries off.
As his father's guards come in looking for Edgar, now the "bad son," Edmund, cuts himself so it will look like Edgar hurt him.
Gloucester enters, on the hunt for Edgar, and Edmund tells him a dramatic story about how he heroically fought off his wicked brother. Gloucester says something like, "Which way did he go?" and Edmund replies with something like, "Look at my wound!" and Gloucester returns, "Great, but which way did he go?"
Gloucester announces that he has put a price on Edgar's head; he adds that with Cornwall's authority, he'll reward anyone that turns Edgar in and punish anyone that protects and hides him. Thus Edgar is made into one of Britain's Most Wanted Criminals.
Edmund covers all his bases here. He reports the following: Edgar said that Edmund's illegitimate status would make him the less credible brother.
Basically, Edmund is setting it up so that any story Edgar could possibly tell in his defense will immediately be suspect.
Meanwhile, Regan and her husband, the Duke of Cornwall, arrive at Gloucester's house. They have already heard the news about Edgar's "treachery." Cornwall praises Edmund for his loyalty to his father, which is ironic.
Regan then weighs in on the whole Edgar-trying-to-murder-his-father affair.
Regan tells us the reason she's fled to Gloucester's house is that she's received word that Lear, her own father, is on his way to stay at her house—with all of his knights, of course.
Regan recounts Goneril's information that the knights are a regular pack of miscreants, and she doesn't want to be at her house to welcome them in (even if it means her father is out on the mean streets of Britain for a night).
Regan is convinced that the knights, in all their wickedness, have put Edgar up to the task of murdering Gloucester, as it's known Edgar used to keep company with Lear's entourage.
Regan reveals to Gloucester that she's also caught in the middle of a tricky political/family squabble. Regan has received opposing letters from her father and her sister, both providing alternate accounts of their fight.
If Regan lets Lear stay with her, that means she's on his side. If she tells him he can't stay, that means she's on Goneril's side.
The solution? Regan chooses not to choose: if she's not in her own home, she can't invite Lear to stay there, nor can she turn him away. It's a pretty clever short-term plan, except the homeless father part.
Regan appeals to Gloucester for helpful advice in settling the dispute between her father and sister. She needs some counsel immediately, as her messengers are waiting to send word back from Regan to Goneril and to Lear.
Obviously, it's pretty poor manners to show up at someone's doorstep in the middle of the night, but Regan and Cornwall are more powerful than Gloucester, so Gloucester has no choice but to welcome them into his home.