Polonius asks Reynaldo to figure out who Laertes friends are, and see what they say about him. He is spying on him.
Insane vs Depressed
Ophelia comes rushing in saying that Hamlet has gone crazy, because of his previous actions. Polonius insists that it is because he is madly in love with Ophelia and she rejected him. He decides to tell Claudius.
Hamlet's Plan
Polonius keeps his word and tells the king. He says he can get proof that the reason Hamlet has gone crazy is because of Ophelia. He also reads a love letter from Hamlet to Ophelia.
The spleen of Hamlet
Polonius has an odd conversation with Hamlet. Hamlet basically insults him and his daughter, but Polonius just feels as if he really is crazy over his daughter. Later Hamlets childhood friends arrive and Hamlet learns that they were sent to spy on him. He tells them that he is depressed.
Hamlet plans to have the players do a play similar to the story of the death of Old Hamlet, called "The Murder of Gonzago."
Hamlet is angry with himself because he feels like a coward.