Several years have passed since the action of Part I. Faust is couched on the grass, amidst nature, trying to sleep as twilight fades to night. Small graceful Spirits hover about, singing to calm him, to ease his intense guilt, and to purge him of his sense of horror. The Spirits sing about the sacred ranks of stars, the glorious moon which seals the bliss of sleep, the obliteration of pain and joy in sleep, and the hopefulness of the dawn that begins to break.
Faust has been paralyzed with guilt ever since he failed to rescue Gretchen. He is stagnating, but with sorrow rather than joy. The Spirits of nature, like the wilderness and cave where Faust celebrates his love earlier, remind Faust of how nature nourishes man and in its cycles forgives what is past. This is how hope emerges.
The sun rises, and the Spirits hide from the loud heralds who accompany it. Faust wakes up and feels freshly alive, joyous, and resolved. He looks at the mountains and feels blinded to his own sorrow. He compares this feeling to having your highest goal overwhelm you, so that you turn to the earth for concealment. Indeed, Faust turns to a nearby waterfall with a rainbow rising from it. This, he says, is a perfect symbol for human striving. What we call life is just a colorful reflection.
This moment is a turning point for Faust. It is spring, the season of rebirth, and here Faust is indeed reborn. He lets go of his remorse and wakes up to life again. Nature restores to him his sense of hope and purpose, and he decides to pursue earthly goals, not seek transcendence. The waterfall represents the constant change of earthly life that also (in its rainbow) reflects the constancy of the divine—the sun.