Dramatic irony occurs when the audience or reader of a work of literature knows something the characters do not. In this case, we as readers are told what God has planned for Satan. God says that he will give Satan the illusion of freedom and let Satan work on his "dark designs." Satan will believe he is succeeding in doing malicious evil and bringing sorrow and defeat to God and God's creation, but, in fact, Satan will "bring forth Infinite goodness, grace and mercy shewn On Man." However, Satan will bring triple wrath and revenge onto himself.
Satan, when cast in hell, declares to his minions that he and they are free from God there, stating, "Here we may reign secure, and in my choyce To reign is worth ambition though in Hell."
We already know, however, that Satan really "reigns" over nothing: God is just using him as a...
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tool to implement his own plans. Although Satan doesn't recognize this, we realize all his bragging about his freedom and "secure" reign is hot air. We also know that it is through Satan that God will bring "infinite goodness" to humans. This will make Satan especially angry and bitter—the triple wrath God has designed for him—because it will really burn him up to have been the means of human salvation.
In lines 210-220 of Book I, Milton suggests that despite Satan's claims of independence and freedom (and in seeking "Evil to others"), Satan sees how his "malice" actually brings (or will eventually bring) forth "Infinite goodness, grace and mercy" to mankind.
The irony is that the more Satan speaks of his liberation from God, the more he seems to damn himself. Although Satan continues to espouse the virtues of freedom, he continually must reiterate that he is only "free" in Hell, whereas in Heaven he must serve God. From these comments, Satan's rationalizations, come one of his most famous lines in the play:
Better to reign in Hell, then serve in Heav'n. (Book I, 263.)
Satan rationalizes that he can make his Hell like Heaven and in Hell, at least he is free from being God's subordinate. But the fact is that God designed the entire structure of Heaven and Hell. And if God is all-knowing, Satan is fooling himself if he thinks he can use God's own structure of Heaven and Hell in his (Satan's) own favor. The implication is that to rebel against something inherently good, is to commit to something inherently bad.