Dialogue has its own rules for punctuation and where the different punctuation goes. Only a character’s spoken words is contained within the quotation marks. All other parts of the same sentence—dialogue tags, actions, and/or thoughts— go outside of the quotation marks.

Dialogue begins with a capitalized word, no matter where it begins in the sentence. The only exception is with interrupted dialogue. When interrupted dialogue resumes, it is not capitalized.

While direct dialogue requires quotation marks, indirect dialogue does not. Indirect dialogue reports that someone said something, and the word “that” is often implied in indirect dialogue.

Direct dialogue: “He is leaving,” she said.
Indirect dialogue: She said [that] he is leaving.

Here are some of the rules for dialogue and punctuation with examples.

Single line of dialogue without a dialogue tag.
The entire sentence, including the period (or question mark or exclamation point), is within the quotation marks.

“He is leaving.”

Single line of dialogue with a dialogue tag first.
The dialogue is enclosed in quotation marks. A comma separates the dialogue tag from the spoken words, but it is outside the quotation marks, and the period is inside the quotation marks.

She said, “He is leaving.”

Single line of dialogue with a dialogue tag following.
The dialogue is enclosed in quotation marks, and a comma follows the dialogue and comes before the closing quotation mark. A period is used to end the sentence. The punctuation separates the spoken words from other parts of the sentence. Since the dialogue tag, she said, is part of the sentence, it isn’t capitalized.

“He is leaving,” she said.

Single line of dialogue with a dialogue tag and an action.
The dialogue is enclosed in quotation marks, and a comma follows the dialogue and comes before the closing quotation mark. The dialogue tag is next with the action following the tag and a period to end the sentence.

“He is leaving,” she said, leaning in closer.