Dialogue can be tricky to write and, sometimes, tricky to punctuate. A few pointers:

I. It is standard form to give each speaker his or her own line of dialogue.

     "Brad, I’d like you to meet my sister, Joanne,” Jill said as they walked into the room. 
     “It’s nice to meet you, Joanne. Or may I call you Jo?” Brad said.
     “I go by Joanne, but you can call me anything you want,” Joanne answered with an impish grin.

Sometimes this rule can be broken.

     “Quick, grab the rope,” he yelled, but when he turned around, his partner quietly said, “It’s too late.”

II. Other times, a character’s dialogue continues for more than one paragraph. In this case, use an initial quotation mark for each paragraph, and insert a closing mark at the end of the final paragraph.

     Doug said, “Dialogue paragraph one.
     “Dialogue paragraph two.
     “Dialogue paragraph three.”

Now the reader knows that Doug is finished speaking, even though he’s rambled on for three paragraphs…

III. Never use quotation marks in a screenplay, where every line is dialogue.

IV. And, finally, do not use laughed, smiled, or grinned as speech tags. These should be used as separate sentences, as it is impossible to grin or laugh a sentence.

     “Oh, you think you’re so funny.” She grinned. “But you have mustard on your face.

It’s easy to get tripped up when writing dialogue. In North America, the rule is to use double quotation marks around the words of the speaker; this seems simple enough, but the most common problem lies in the placement of punctuation other than quotation marks.

The standard rule is to include periods and commas within the quotation marks:

She said, "I don’t believe you are telling the truth."

"I don’t believe you are telling the truth," she said.

"I don’t believe you," she said, "and I no longer trust you."

"I don’t believe you!" she exlaimed.

"Should I believe you?" she asked.

"Fine, don’t believe me," he replied. "You’ve never trusted me."

Note that dialogue tags (she said, he replied) must be a "speaking action," whereas non-speaking actions (he snorted, she glared) are not punctuated as tags and should be treated as separate sentences:

"I don’t believe you are telling the truth." She glared at him.

"Fine, don’t believe me." He snorted with disgust.

Use single quotation marks to mark dialogue within dialogue:

"And then I looked at him and said, ‘I don’t believe you!’" she said.

She said, "And then I looked at him and said, ‘I don’t believe you!’"

"And then I looked at him and said, ‘I don’t believe you!’ and he walked away."

Another general rule is to start a new paragraph for each new speaker. It makes for a clearer picture of the give and take of a "conversation" and helps the reader switch from speaker to speaker.

Some writers use italics to set off dialogue, while others use no special punctuation at all. However, unless you’re Hemingway or Joyce, it’s best to save the italics for quoted thoughts and use traditional punctuation for your dialogue. For clarity’s sake, whatever format you choose, keep it consistent, and your readers will thank you.

http://www.writersrelief.com/
Author’s Submission Service Since 1994