Dogberry, a constable with an awesome name, is selecting a few new men to help stand watch over Messina.
Dogberry may not be the most qualified person to perform this task. His vocabulary is questionable, as is his understanding of...well, lots of things.
He asks the First Watchman to recommend some men for the watch, and the First Watchman suggests two guys who can read and write.
Dogberry tells one of the reader-writers that he's lucky he's good looking. That's more important than being able to read and write, but reading and writing may come in handy when he can't get by on your looks. He puts this guy, Hugh Oatcake (another great name) in charge of the watch.
Next he tell them the watch should look out for vagrants and stop them in the name of the Prince.
Dogberry goes on to give a series of nonsensical instructions to the watch: if a man doesn’t stop, he should be let go to do as he pleases, because any man who doesn’t stop isn’t one of the Prince’s subjects and therefore is not under the jurisdiction of the watch. Further, the watch should be grateful to be saved the trouble of dealing with vagrants.
In fact, Dogberry essentially gives the men permission to sleep through their shift, but advises that they make sure they aren’t robbed while they’re dozing.
More of Dogberry’s ridiculous instructions include: drunken men should be reprimanded, unless they’re too drunk, in which case they should be left alone to sober up.
Thieves should be avoided, because getting involved with them would compromise one’s honesty.
The men on watch should wake up nurses (nannies) whose babies are crying. If the nurses do not wake up at the watch’s calls, the babies’ cries are sure to wake their nurses up eventually.
Dogberry goes on in this vein, with Verges throwing in some supportive comments. Whenever they open their mouths, the two men generally reveal that Messina is very lucky to be a quiet town, because their watch is completely incompetent to handle any real crime or disturbance.
The watch doesn’t need to do much, except be careful that their swords don’t get stolen.
Before Dogberry leaves, he tells the men on watch to carefully observe Leonato’s door. With the wedding coming tomorrow, there’s likely to be a big to-do tonight. (If only he knew!) Lastly, he tells them to "Be vigitant!" (mistaking the word vigilant).
Dogberry and Verges exit.
The watch’s plan to settle into a peaceful sleep is interrupted by the entrance of Borachio and Conrade, Don John’s two partners-in-crime.
Borachio and Conrade haven’t noticed the watchmen, though the watch has noticed them. The incompetent men on watch listen carefully for signs of treason.
Borachio updates Conrade on the night’s events, sparing no little detail, and announcing that he’s earned his 1.000 ducats from Don John.
Conrade wonders how Borachio’s villainous assistance could come with such a high price tag. Borachio points out that when a rich villain needs a poor villain’s help, the poor villain can name any price.
Borachio compares his robbery to the robbery that fashion commits—fashion has a habit of making men change their minds too often.
Conrade chimes in that fashion is indeed a robber, as men will throw out their apparel because it’s no longer in style even before the clothing has been worn out. Conrade notes that Borachio must be stricken by the fashion sickness too, as it’s distracted him from the point of his story: how he brought about the ruination of Hero this very night.
Borachio describes how his plan went off without a hitch: Margaret leaned out of Hero’s window and bid him a thousand goodnights (we’re not sure what they were up to before they said goodbye, but likely it involved Borachio being in Hero’s bedroom).
Anyway, Borachio replied to Margaret’s goodnights, but he called her "Hero." Meanwhile, Don John was stationed with Don Pedro and Claudio in an orchard, close enough to hear what was going on, but not close enough to see that the woman was Margaret, not Hero.
Borachio confirms that Don Pedro and Claudio were fully convinced of Hero’s disloyalty, and didn’t suspect that the scene was a villainous plot masterminded by Don John.
Borachio makes the insightful point that the scheme had many layers, like an onion, or a layer cake. Claudio and Don Pedro were first inspired to distrust Hero by Don John’s claim of her disloyalty. Because they were primed to think of her as disloyal, Borachio’s villainy, combined with the dark night, cemented Claudio and Don Pedro’s suspicions.
Claudio became enraged after "witnessing" Hero’s disloyalty, and he vowed to reveal Hero’s love affair in front the whole congregation tomorrow at their would-be-wedding. He’s determined to send her home without a husband (or her dignity!). There will be no marriage, but everyone will get their money’s worth in the spectacle.
The watchmen, who have been listening this whole time, finally step out and seize Borachio and Conrade, calling them out for lechery (when they really mean treachery). The disease of poor grammar and word usage is apparently contagious; the watch suffer from it nearly as badly as Dogberry.
Borachio and Conrade surrender, but we’ve still got some unraveling to do before things get really good.