Desdemona, Cassio, and Emilia enter. Desdemona assures Cassio that she will help him regain his position. Just then, Othello and Iago enter. Cassio feels so ashamed that he feels unable to talk with Othello, and exits. Othello asks Iago whether it was Cassio who just departed. Iago responds that it seems unlikely, because why would Cassio "steal away so guilty-like / Seeing your coming" (3.3.38-39)?
Desdemona, who showed independence resisting her father's anger in 1.1, here proves herself willing to take an independent political stand against her husband. Iago once again manages to plant a seed of doubt in another person's mind without seeming to mean to.
When Othello reaches Desdemona, she asks him to reinstate Cassio. Othello promises to do so soon, but won't give a definite time, much to Desdemona's annoyance. Othello says that he will deny her nothing, but asks for some time to himself. Desdemona exits, saying "I am obedient" (3.3.90).
Othello's sudden curtness to Desdemona may indicate that he is already suspicious of her, just from seeing Cassio rush away. For her part, Desdemona insists on her obedience to him as a virtuous wife.
Othello and Iago are now alone. Iago starts asking vague but leading questions about Cassio, until Othello finally demands that Iago make clear his suspicions. Iago then makes a show of saying that his suspicions must be wrong because Cassio seems so honest, but in the process plants the idea of an affair between Cassio and Desdemona in Othello's mind.
Othello's exasperation with Iago's further supports that Othello has already become suspicious. Iago once again plants seeds of doubt while making himself look innocent by airing his suspicions and then arguing that they can't possibly be true.
Iago again says that his suspicions are likely false. He warns Othello against the dangers of "the green-eyed monster" (3.3.165-7) of jealousy, while at the same time noting that Desdemona did successfully deceive her father. Othello claims not to be jealous; though it is obvious from his manner that this is untrue. Finally, Iago counsels Othello to trust only what he sees, not Iago's suspicions. Othello tells Iago to have Emilia watch Desdemona, and Iago tells Othello to watch how Desdemona acts regarding Cassio.
Iago continues to strive to produce the effects of honesty. However, his words and shifts are carefully calculated to inspire jealousy. Notice, also, that until this moment, Othello has always been honest. Now, to protect his own honor, he lies and says that he is not jealous. Jealousy is a "green-eyed" monster because it takes you over and causes you to see what is not there.
Iago exits. Othello, alone, now voices worry that perhaps it's unrealistic for him to expect Desdemona to love him when he is black, not well mannered, and considerably older than she is. He curses marriage and laments that it is the fate of "great ones" to be cuckolded (3.3.277).
As soon as doubt about Desdemona's faithfulness creeps in, Othello loses his sense of manhood and begins to be affected by the racial prejudice that he had formerly shrugged off.
Desdemona and Emilia enter to tell Othello it is time for dinner. Desdemona tries to soothe him with her handkerchief, but Othello says it is too small and drops it to the floor. They exit to go to dinner. Emilia then picks up the handkerchief, noting that Desdemona treasures it since it was the first gift that Othello gave to her, and also that Iago is always asking her to steal it for some reason. She decides to make a copy of the handkerchief for him.
The handkerchief is a symbol of Othello and Desdemona's love. Notice that it is Othello, now jealous, who says it is too small and lets it fall. Meanwhile, despite being misused by her own husband, Emilia nonetheless remains eager to please him. Emilia's making a copy of the handkerchief echoes her husband's diligently producing illusions.
Iago enters. To his delight, Emilia shows him the handkerchief. He grabs it from her hand. She asks for it back unless he has some important use for it, but he refuses to give it back and sends her away. Once he's alone, Iago plots to place the handkerchief in Cassio's room, so that Cassio will find it.
Snatching the handkerchief, Iago retains exclusive control over "directing" the unfolding jealousy of Othello. The planting of the handkerchief, which Othello dropped, in Cassio's room shows how jealousy produces the effect it fears.
Othello enters, frantic and furious, and says to Iago that he would have been happier to be deceived than to suspect. He shouts farewell to war and his "occupation's gone" (3.3.357). Othello then grabs Iago by the throat, and commands him to come up with "ocular proof" (3.3.360) that Desdemona has been unfaithful or else be punished for causing Othello such emotional pain.
Othello here states that the uncertainty of jealousy is actually worse than the possible crime, and expressly connects his worrying with the loss of military glory, of honor and manhood. He seeks to eliminate the uncertainty by getting proof—by seeing reality.
Iago responds that it's probably impossible to actually catch Desdemona and Cassio in the act of infidelity, but that he can provide circumstantial evidence. He says that one recent night he and Cassio slept in the same bed, and that Cassio, while asleep, called out Desdemona's name, kissed Iago, lay his leg over Iago's thigh, and cursed fate for giving Desdemona to the Moor. Othello is enraged, saying "I'll tear her all to pieces" (3.3.438).
Iago responds to Othello's demand for visible proof with the most circumstantial, unverifiable evidence. And Othello, overcome by jealousy, accepts it. Notice also that Othello immediately thinks of killing Desdemona. He believes that she has robbed him of his manhood, so he feels he must destroy her.
But Iago cautions Othello that it was just Cassio's dream and may not signify anything about Desdemona's faithfulness. Then Iago asks whether Othello once gave Desdemona a handkerchief with strawberries embroidered on it (this is the kerchief that Emilia earlier picked up). When Othello says yes, Iago sadly informs him that earlier that day he saw Cassio holding the handkerchief.
Yet again, Iago is most deceitful precisely in the moments in which he pretends to be most moderate. And, once again, he follows a moment of backing off with an insinuation calculated to drive Othello still madder with jealousy—all carefully staged.
Othello cries out in aguish, then kneels and vows that he will take revenge on Cassio and Desdemona. Iago kneels and vows as well. Othello makes Iago his new lieutenant.
This highly theatrical moment of vow-taking reflects the climax of Iago's plan. He has become lieutenant, and destroyed Othello's sense of his own honor in the process.