His mother gave him the handkerchief on her deathbed and told him to give it to his wife if he should marry.
Othello then said: Iago had created suspicion in Othello's mind that Desdemona and Cassio were having an affair by using innuendo and subtle suggestion.
The sly Iago has already arranged to meet with Cassio and will talk about Bianca, a girl Cassio has been seeing. Othello listens to the entire conversation, believing that every reference to Bianca by the two men is about his wife.
The situation is worsened when Bianca later enters and waves the handkerchief at Cassio, exclaiming that she was insulted by him daring to ask her to 'take out the work' on the napkin, when it clearly was a gift from another woman.
Iago supports the general in everything he says and suggests that Othello not poison her. The scene has been set for tragedy to follow - Iago will have his revenge and innocents will die in the process.
He recommends: Othello is convinced and has made up his mind.
She attempts to change the subject and asks him about Cassio's appeal, but this just angers the general even more and he insists that she procure the handkerchief. Othello superstitiously believes that the supposed charm has done its work.
His outburst provokes Emilia into asking whether he is not jealous.
Cassio had earlier been dismissed by Othello for his involvement in a fracas which had been plotted by Iago and Roderigo.
Iago had advised Cassio to ask Desdemona to petition Othello to reconsider his decision.