This scene displays the depth of Iago's malice. He has already decided to destroy both Othello and Cassio for the injustice he believes that he has suffered by Othello appointing Cassio, and not him, as his second-in-command.
In the conversation which he initiates with Montano, he assassinates Cassio's character by stating that, even though the lieutenant is an excellent soldier and a great leader, he has a worrying vice which is the equal of his virtues. He expresses concern that Othello should have so much faith in Cassio because this weakness will, at some time or other, bring disruption to Cyprus.
When Montano enquires whether Cassio often displays this infirmity, Iago states that it is a regular practice before Cassio goes to bed. He asserts that Cassio would stay up all night and all day if he does not drink himself to sleep. Montano is obviously concerned that Cassio should have a drinking problem and states that it would be a good idea if Othello is told about this weakness since he, in his goodness, might see only the good in Cassio and ignore the evil.
At this point, Iago has already arranged with Roderigo to set Cassio up. He knew that Cassio has a weak stomach for alcohol and that he gets drunk easily because Cassio had told him. He has now gotten Cassio inebriated and is ready to institute the next part of his pernicious plot. Roderigo must tempt Cassio into a fight and start a brawl. Iago knows that Othello would be so embarrassed by his lieutenant's unruly actions that he would dismiss him.
The plan works perfectly. Cassio is accosted by Roderigo on his way to his chamber and a fight ensues. Montano gets involved and Cassio fights with him. Othello is awakened by the brawl and after an 'honest' report of events by Iago, he dismisses Cassio:
...Cassio, I love thee
But never more be officer of mine.
It is pertinently ironic that he tells Iago that, in his honesty, his ancient has made light of the matter when it is in fact he who had set up the entire incident.
In Act 2 Scene 3 of the play Othello by William Shakespeare, Iago is setting the wheels in motion for his convoluted plan to destroy Othello. He needs to do this in a very convoluted fashion, going all round the houses to get what he wants - the final outcome where all his prepared and primed evil jigsaw pieces fall into place. In this scene, he is trying to discredit Cassio and knows that reputation is all and a bad one gets round to gossipers and bosses alike. Little by little he will destroy Cassio's credibilty as a tried, tested and true comrade of Othello's. He starts by lying about a "drink problem." We can see the unlikeliness of this in Montano's incredulous reply at first "But is he often thus?" He wants to give him the benefit of the doubt that this is just a one-off, but Iago persists, saying he is (in effect) an alcoholic or drink-dependent who can't even sleep if "drink rock not his cradle."
In (2.3.125-136) Iago tells Montano that Cassio is a "soldier fit to stand by Caesar / and give direction" but that his infirmity will be his downfall. Iago implies that Cassio's weakness is drink. He tells Montano the lie that drinking is the prologue to his sleep and that he'll be awake most of the night if "drink not rock his cradle."