Belcredi and the Doctor are engaged in a discussion concerning Henry IV's madness. The Doctor tries to argue that Henry is able to recognize that they are faking their roles, but that his madness makes him believe it is real. Donna Matilda disagrees, claiming that Henry IV clearly recognized her. Both the Doctor and Belcredi argue that it is not possible for him to have been lucid, but she refuses to back down.
The Doctor has planned a risky trick in order to snap Henry IV out of his madness and back into sanity. They are waiting for Di Nolli and Frida to return so that Frida can wear an old dress of her mother's, the same dress that is worn in the portrait. Finally Frida walks in wearing the dress; she is the spitting image of the portrait. Belcredi criticizes the Doctor's plan, which involves making the mother and daughter stand next to each other in similar attire, claiming that it will ruin Henry IV's mind to be so violently pulled out of his delirium.
Landolph arrives and asks them to stand before Henry IV again in order to convince him that the Pope is willing to receive him. Donna Matilda and the Doctor agree and enter Henry's room. Belcredi remains behind and tells Di Nolli that he cannot understand why the phychologists take degrees in medicine when they never cure anyone. He thinks that a law degree would make more sense. While peaking through the keyhole, Belcredi sees the Doctor and Donna Matilda returning along with Henry IV. He, Frida, and Di Nolli rush out of the room.
Henry enters, continuing a conversation he started in the previous room. He then takes Donna Matilda aside and asks her if she loves her daughter, causing her to become confused about whether he is speaking out of madness or in reality. He further tells her to have her daughter, his wife (she is pretending to be his "wife's" mother), come and visit him at his castle.
Once Donna Matilda and the Doctor leave, Henry IV says, "Buffoons, buffoons! One can play any tune on them!" He turns to his counselors and tells them that he is not mad, but merely pretending to be mad. He calls them by their real names, thereby convincing them that he is completely lucid. Henry argues that society labels certain men "mad" because it cannot bear to hear the truths that madmen tell. The counselors gradually grow used to the fact that he is speaking coherently, and Henry finally asks them why they never stopped to realize that they had the perfect life, the life of living in a pre-ordained dream with foreknowledge of the ending.
John, the old servant, arrives in order to take dictation from Henry. Ordolph wants to play a joke on him, but Henry insists on acting his part because he does not want to dissappoint John, who cares deeply about helping him.
An interesting feature of this play is that Pirandello speaks out against the Doctor on several occasions. This is probably due to his personal experience with his wife's madness. Belcredi offers us Pirandello's opinion: "I say, I've never understood why they take degrees in medicine." When asks what he means, Belcredi claims that law degrees would be more suitable. He continues by saying that the more the doctors claim they cannot perform miracles, the more people believe in their abilities. The irony is that a miracle is exactly what is needed.
One of the more interesting passages occurs after Donna Matilda and the Doctor leave for the second time. Henry remarks, "And you [the valets] are amazed that I tear off their ridiculous masks now, just as if it wasn't I who had made them mask themselves." He is referring to his ability to not only make the other characters wear masks for him, but also to his sense of being able to peer through all masks. Henry IV states that he is a madman because he is aware of the mask that he wears, whereas everyone else is merely mad because they are not aware of their own masks.
This definition of madmen as men who tell the truth is a continuation of the first act. "Because it's impossible to hear [madmen] speak!" Henry IV is claiming that madmen are labeled mad so that other men can shut them up and not have to listen to them. This is directly related to the fear with which the people present at the masquerade realize that Henry is no longer wearing a mask the way they are. Masks and telling the truth are oppositions; Henry is only able to tell the truth by pretending to be mad.
The action of making the valets get a lamp rather than turn on the electric light is important. "No, it would blind me!" Henry is actually afraid that the electric light would dazzle him by returning him to the real world. He is unequipped to deal with reality, a fact that he later admits as the reason for choosing to feign madness for over eight years. .
Pirandello introduces the concept of the variability of truth in this act. He does this by having John appear. When John the monk arrives, Henry convinces the other valets to pretend everything is "true", when of course it is all fake. This is a form of meta-theater, where they are acting that they are acting for John. The truth thus becomes different for each character on the stage, making it impossible for any one character to know what is real.