Dialogue guide - part 1

Basic components

Dialogue is written with one to three parts: the dialogue part, an optional dialogue tag, and an optional action tag. The dialogue is obviously what the character says, the dialogue tag is the part that attributes the dialogue to a speaker, and the action tag is used to indicate the action the speaker is undertaking. In the sentence "Storming toward him, she said, 'How dare you speak his name!'" the order is action tag (walking toward him), dialogue tag (she said) and dialogue (how dare you speak his name!).

Note that the action tag is written using the present progressive tense; the action is ongoing while the character is speaking the dialogue. If the previous example had been written as "She stormed toward him and said, 'How dare you speak his name!'", it indicates she spoke the dialogue after she finished walking toward him rather than while storming toward him.
When dialogue is written like this, it's not needed to use a dialogue tag as the speaker is already identified. So the previous example could be written as: She stormed toward him. "How dare you speak his name!".

He said, she said, they said.

Before I delve into all the little punctuation details, I first want to delve deeper into the dialogue tag and the use of adverbs of manner. A very common mistake inexperienced writers make is using adverbs of manner to tell the reader how dialogue is said and therefore how the character is feeling. Sometimes this is done in combination with a wide range of different types of dialogue tags like the following examples:
- "How are you?" he asked shyly.
- "Get out of here!" they shouted aggressively.
- "I don't know," he commented indifferently.

First the different dialogue tags. In the majority of cases you can and should use "said". Readers consider these almost like punctuation and almost skip over them while reading, so they don't break the flow unless they're overused. When a question is asked, you can obviously use "asked", and when something is shouted you can, of course, use "shouted" or "cried" or something similar. But in most other cases the context already dictates how something is said, or at least it should. This is true even more for adverbs, who should be used very sparingly or simply not at all.

To illustrate this all, here's an example of how not to do it, followed by a fixed version:
"Are you okay?" he asked worriedly.
"I'm fine, just give me a minute," she replied.
"Your leg looks pretty messed up. You sure you're fine? Can you walk?" he pressed on.
"I said I'm fine, just let me be!" she exclaimed with increasing anger.
"Here, let me help you up," he said as he tried to pick her up.
"Aah! Put me down you oaf, it hurts!" she cried.

Are you okay?" he asked.
"I'm fine, just give me a minute," she said.
"Your leg looks pretty messed up. You sure you're fine? Can you walk?"
"I said I'm fine, just let me be!"
"Here, let me help you up," he said, grabbing her beneath the shoulders to lift her up.
"Aah! Put me down you oaf, it hurts!" she cried.

The second example did away with the adverbs of manner and with some of the overly specific dialogue tags. The dialogue alone already gives a picture of how things are being said, and because there are only two characters there's no need to constantly use dialogue tags to identify people. Even the last "she cried" could be done away with or replaced with an action, but in this case it depends more on the context that would come before and after this small excerpt.

Punctuation

Right, time to delve into the punctuation details. First and foremost: punctuation is written inside of the quotation marks. It doesn't matter if it's a comma, exclamation mark or something else, they all stay neatly within the quotation marks.
Correct: "Thanks," he said.
Incorrect: "Thanks", he said.
Correct: "Wow!" she said.
Incorrect: "Wow"! she said.

Quotation marks can be either double or single marks. It comes down to personal taste and/or the taste of a potential publishing company, but remain consistent either way.
Quotes within dialogue are quoted using whichever quotation marks you didn't pick.
Correct: "I asked her," he said, "she told me 'the dark wizard is coming.'"
Incorrect: "I asked her", he said, "she told me "the dark wizard is coming.""
Correct: 'I asked him. "Get lost!" he said to me.'
Incorrect: 'I asked him. 'Get lost!' he said to me.'

No quotation marks are used when the the dialogue itself is described in the writing, rather than spoken by a character.
Correct: He told her to get lost.
Incorrect: He told her "to get lost."
Correct: They talked about books for hours.
Incorrect: They talked "about books for hours."

Dialogue and tags

Dialogue, dialogue tags and action tags are separated with commas regardless of their order. But there are a few special rules (see below)
Correct: Searching across the room, she said, "I could've sworn I put my phone around here."
Incorrect: Searching across the room she said: "I could've sworn I put my phone around here."

If dialogue is followed by a dialogue tag, and the dialogue doesn't use a special punctuation mark (question mark, dashes, etc.), the dialogue ends with a comma as per the rule above.
Correct: "I'll get right on it," he said.
Incorrect: "I'll get right on it.", he said.

If there is a special punctuation mark and the dialogue tag comes after the dialogue, no comma comes between them.
Correct: "That's awesome!" she said.
Incorrect: "That's awesome!," she said.
Correct: Looking around, she said, "This is awesome!"
Incorrect: Looking around, she said "This is awesome!"

Dialogue ends with a period when:
- It comes after the action and dialogue tags.
- There are no dialogue tags.
- There are no other special punctuation marks and one of the previous two statements is true.
Correct: He observed the paintings for a while. "I'm bored."
Incorrect: He observed the paintings for a while. "I love these!".

New speaker

Whenever a different character speaks, start their dialogue on a new line.*
Correct: "That's so cool," he said.
"I know right!" she said.
Incorrect: "That's so cool," he said. "I know right!" she said.

*Some prefer to start the new speaker's dialogue on a new, standalone line with an empty one above and below it, rather than just on the next new line. It's partially a matter of taste, partially a matter of medium and target audience. When the target audience is (really) young, starting dialogue on a new line can be helpful for the readers to keep track of who is talking. For older or more experienced audiences, using dialogue tags properly and starting dialogue on new lines is enough.
To illustrate, with free space the above example would be:

"That's so cool," he said.

"I know right!" she said.

Long dialogue

If dialogue of a character goes on for a while, splitting it into multiple paragraphs is often better to make it easier to read. When you do this, only use an ending quotation mark for the final paragraph, not for the others in between.
Correct: "Paragraph of dialogue.
"Continued part of dialogue."
Incorrect: "Paragraph of dialogue."
"Continued part of dialogue."

Trailing off

If a character trails off, falters or otherwise gradually stops or pauses while talking, use ellipses (three dots).
Correct: "Sorry, I cannot..." she said, tearing up.
Incorrect: "Sorry, I cannot," she said. She teared up before she could finish.
Correct: "I'm just... tired of everything," he said.
Incorrect: "I'm just tired of everything," he said, searching for the energy to finish his sentence.

Interruptions

When there's a break in dialogue or thought or a sudden interruption, use em dashes (the long dash).
Correct: "As for watching eyes—" He got up to check the windows.
Incorrect: "As for watching eyes", he interrupted himself to check the windows.

These interruptions can happen as a result of the character's speech, perhaps because their thoughts are hopping from one to the other mid-sentence or because they wish to correct a mistake while talking.
Correct: "As you wish, sergeant — general!" she said.
Incorrect: "As you wish, sergeant. General!" she said, quickly correcting herself.
Correct: "I could bring you some — I mean, if you like them that is — it would be no bother," she said.
Incorrect: "I could bring you some, I mean, if you like them that is, it would be no bother," she said while constantly interrupting herself.

Em dashes are also used to separate independent clauses nestled within each other, similar to the previous example. The exception being dialogue tags.
Correct: "If you think I will stand for this injustice" — her soldiers raised their spears and aimed them at her enemy — "you are sorely mistaken!"
Incorrect: "If you think I will stand for this injustice," her soldiers raised their spears and aimed them at her enemy, "you are sorely mistaken!"
Correct: "If you think you'll get away with this," he said, "you're a bigger fool than I thought."
Incorrect: "If you think you'll get away with this," — he said — "you're a bigger fool than I thought.

When an em dash comes between words, some people prefer to write them attached to both words while others prefer to leave a space on both sides of the dash. This is a purely stylistic choice that depends on your taste and/or on that of your publisher. So the example from earlier could be written as both:
"As you wish, sergeant — general!" she said.
"As you wish, sergeant—general!" she said.
You can see how the em dash is easy to confuse with a regular dash in this case, and why it's easier for readers when the em dash has spaces next to it.