In her quarters, Desdemona sends the clown to tell Cassio she has made entreaties on his behalf to Othello, and to ask him to come speak with her.
The sudden shift from the wrongly jealousy Othello at the end of the last scene to Desdemona emphasizes just how innocent and virtuous she actually is.
When the clown exits, Desdemona wonders what has happened to her handkerchief. Emilia, who is also present, says she doesn't know.
In response to Desdemona's frank question Emilia exhibits some of her husband's duplicity.
Othello enters. He takes Desdemona's hand, and notes that it is moist. When Desdemona tries to bring up Cassio's suit, Othello says he has a headache and asks for the handkerchief he gave her. When, Desdemona admits she doesn't have it at hand, Othello tells her that the handkerchief is magic, was given to his mother by an Egyptian sorceress, and that a woman who loses it will lose her husband.
Othello obsessively tries to find evidence of infidelity. The handkerchief's origins with an Egyptian sorceress connects it to: Othello's non-white background; illusion, such as those Iago is using the handkerchief to create; and to a threatening woman, hinting that, to men, all women are threatening.
Uncomfortable, Desdemona says she doesn't have the handkerchief with her, but that it isn't lost. When Othello demands that she go get it, she tries to change the subject back to Cassio's suit. This enrages Othello, who exits. Emilia wonders if Othello is jealous, then comments on how fickle men are towards women.
Under Othello's pressure, the typically honest Desdemona is herself forced to equivocate. Bringing up Cassio in good faith, she plays right into Iago's hands. Emilia, who is less idealistic and more worldly than Desdemona, immediately understands that Othello's behavior stems from jealousy.
Iago and Cassio enter. Cassio asks about his suit, but Desdemona tells him that he must be patient—for some reason Othello seems not himself and her advocacy of Cassio only made Othello angrier. Iago exits, promising to look into Othello's anger.
Iago continues to handle every person involved in the unfolding drama carefully. He manages to control the flow of information by (seemingly) helpfully promising to serve as a faithful go-between. But of course by controlling the flow of information he can influence everybody else. Iago always strives—mostly successfully—to ensure that only he (and the audience) have a full understanding of what is going on.
Desdemona surmises that Othello's bad temper must arise from some affair of state. Emilia wonders again whether it might be jealousy. When Desdemona says he can't be jealous, since she gave him no reason to be, Emilia answers that jealousy needs no reason—it is a monster that grows by feeding on itself. Emilia and Desdemona exit to look for Othello.
Like Othello, Desdemona doesn't understand that a skillful liar can twist reality to look like something else. She thinks that if she is virtuous, then Othello and the world will see it. Emilia, however, understands that jealousy can warp a person's vision, so that they see what isn't there.
As Cassio waits alone, a prostitute named Bianca enters. She says that he does not visit her enough. He apologizes and says he has been worn out with troubled thoughts. He then asks Bianca to make a copy of a handkerchief that he hands to her. Bianca thinks that the handkerchief must be a gift to him from another mistress, but he says that her jealousy is for nothing—he found the handkerchief in his room and doesn't know whose it is. Though Bianca wants to stay with Cassio, he says that he has to see Othello and that they'll have to meet later. Bianca grudgingly accepts.
Bianca's jealousy of Cassio provides a contrast for the jealousy that Othello feels for Desdemona—demonstrating that women are also subject to the jealousy that Emilia, earlier in this scene, attributes only to men. Bianca also serves as a contrast to Desdemona: Bianca is whore, while Desdemona's virtuous wife. But the depiction of Bianca as a jealous woman who truly cares for Cassio complicates the contrast.