The three types of irony are dramatic, verbal, and situational. Dramatic irony is based on withholding information, verbal irony on words meaning their opposite, and situational irony on events turning out the opposite of what was intended.

In dramatic irony, the audience or readers of a literary work have information that the characters don't. For instance, in Shakespeare's Macbeth, we as the audience know that Macbeth and Lady Macbeth have plans to murder Duncan, but Duncan and the other characters are oblivious to this fact. This type of irony builds anxiety and suspense.

In verbal irony, words end up conveying a meaning that differs from their literal meaning. An example of verbal irony comes from Swift's essay A Modest Proposal. The clueless narrator thinks he is appealing to his audience when he writes of selling and eating human babies, stating that it might be best "buying the children alive and dressing them hot from the knife, as we do roasting pigs." The irony is that this image is utterly horrifying to most people—the words have an effect opposite from the appetizing picture that the narrator intended to convey.

In situational irony, events in a work of literature turn out differently than expected. A classic example of this type of irony occurs in O. Henry's short story "The Gift of the Magi." In it, the wife sells her hair to buy her husband a costly watch chain, and the husband sells his watch to buy his wife a costly comb and brush set. Ironically, both end up with gifts they can't use—but through their sacrifices they show their love for the other person.