At the prison, Dogberry and Verges, along with a sexton (who will take notes on the interrogation) prepare to examine Borachio and Conrade.
Dogberry does his usual mangling of the English language, and finally gets out that Borachio and Conrade stand accused of being "false knaves," though they deny it.
The watchmen are called in to make their accusations, and they present it in three parts, which Dogberry doesn’t quite understand, and mistakes the importance of.
First, a watchman says Borachio and Conrade are guilty of calling Don John a villain. Dogberry assumes the crime in this is perjury, since it must be a lie.
A second watchman says that Borachio has received a thousand ducats from Don John for wrongfully slandering Hero. Dogberry misses the "wrongfully accusing Hero" part, and decides the crime here is theft.
Finally, the first watchman declares that because of the wrongful accusation against Hero, Claudio intended to disgrace the girl before the wedding party, and refuse to marry her. Dogberry gets this, but he condemns the knaves to "everlasting redemption." He actually means "everlasting damnation," but this is a useful slip if you’re a sinner.
Thankfully, the sexton has two brain cells to rub together, and he realizes that they’ve tripped upon a treacherous plot. The sexton combines the watchmen’s testimony with the news that Don John has secretly run away from town, and Hero died that morning as a result of an accusation of disloyalty.
The sexton orders Dogberry and Verges to tie up Borachio and Conrade. He intends to bring the two villains to Leonato, so he can deliver the news of the plot to Hero’s poor father.
The sexton departs. When Dogberry and Verges try to lay hands on Conrade, the prisoner immediately dismisses Verges as a coxcomb (referring to the popular jester’s hat that was fashioned after that fleshy red bit on a rooster’s head), and thus calling Verges a fool.
Dogberry wishes the sexton were still around, so he could add that insult the record. In response, Conrade declares Dogberry an ass.
Now we finally get some insight into why Dogberry is so full of highfalutin language, and constantly trying to prove himself a gentleman.
Dogberry lists off all the societal labels he has: he’s a householder, and a good looking guy, and he’s knowledgeable about the law, and he has money enough. But he also admits that he’s a man that’s "had losses." So it seems like Dogberry once had much more, lost his station in life, and now spends all his time trying to rebuild his legitimacy.
Either way, Dogberry resents being called an ass, and tells everybody to remember Conrade's crime against him.