Viola in her male disguise as Cesario enters with another courtier Valentine. Valentine foresees a great career for Cesario, as he has been at Orsino’s court for three days and he is already Duke’s favourite. (BTW, in this scene they call him interchangeably “Duke” and “Count”, so apparently it didn’t matter to Shakespeare.) Viola seizes on the conditional wording of Valentine’s opinion “If the Duke continues these favours” and asks Valentine whether he thinks Cesario might be negligent in his duties or Orsino inconstant in his feelings. Valentine assures Cesario he is very constant, which is going to be bittersweet to Viola, taking into account she is in love with him and she knows Orsino is in love with Olivia. Orsino enters and sends Cesario as a messenger of his love to Olivia. He should take no for an answer until he sees her and then profess Orsino’s love for her. Being young, he should be more successful in this errand than an older man, says Orsino, suspiciously long dwelling on Cesario’s still smooth skin and ruby lips. Cesario leaves, assuring Orsino he is going to do his best, even though Viola’s heart is breaking.
In Olivia’s home Maria says to Olivia’s fool Feste that she won’t speak on his behalf unless he tells her where he’s been, which Feste won’t do. Maria predicts Feste’s being AWOL will result in his either being hanged (surely too harsh?) or fired, but Feste still won’t budge. There are a lot of complicated jokes between him and Maria, mostly punning on “hang”. Maria leaves and Olivia enters with her attendants, including Malvolio, a figure about which we are going to hear a lot later. Feste in an aside addresses his wit to help him, observing modestly that he is sure he lacks wit, as opposed to those who claim that have it, but are in fact fools. “Better a witty fool than a foolish wit”.