How to punctuate dialogue

Step 1

What are quotation marks?

Quotation marks are vital to dialogue because they tell the reader what words are being spoken or quoted. Without them, it's hard to tell what is being spoken and by whom. All stories that have dialogue have quotation marks.

"Where do quotation marks go?" you ask.

They go at the beginning of what is being said and at the end, as shown in the above example.
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Step 2

What is a tag line?

Tag lines identify the speaker. The tag line is not part of the quotation.

"Are body movements part of the tag line?" you ask.

you ask is the tag line here. Common tag lines include:

• she said
• I exclaimed
• he remarked

What is a body movement?

Body movements are not a tag line. Note the punctuation in the following sentences.

(1) "Are you coming?" she asked. (tag line)

(2) "Are you coming?" She furrowed her brows. (body movement)

In example 1, a question mark is used, but the S in "she" is in lower case. she asked is a tag line.

In example 2, a question mark is used but the S in "she" is in upper case.  She furrowed her brows  is a body movement. "She" is capitalized. It is not a tag line.
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Step 3

Punctuation and quotation marks.

The punctuation always goes inside the quotation marks.

"I love it here," said Rachel.

"How much does that cost?" she asked.

Unless you are asking a question or using an exclamation point, you always use a comma when you have a tag line.

               

But if you don't have a tag line, don't use a comma!

"Let's go for a ride."

"A ride?" She rolled her eyes.
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Step 4

What if a tag line comes first?

 You use a comma before the quote.

Jeff said, "I don't want to go!"

If the tag line is at the end of the quote, use a period.

"I don't want to go!" Jeff said.

If the tag line interrupts a one-sentence quotation, use a comma.

"I don't want to go," said Jeff, "because it's boring."

If the tag line is between two complete sentences of dialogue, use a period.

"I don't want to go," said Jeff. "It's too boring."
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Step 5

Starting new paragraphs!

When you read dialogue in a book or magazine, note that the dialogue isn't all scrunched together.

"I can't go," said Emma. "But you have to." Rachel stomped her foot. "Call my mother," Eric said angrily. "We're going!"

This is difficult to read and just not right.

You need to start a new paragraph each time a different person speaks.

"I can't go," said Emma.

"But you have to." Rachel stomped her foot.

"Call my mother," Eric said angrily.

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Punctuating dialogue is tedious at first but it's necessary to get it right, especially if you want to write professionally. The more you follow correct punctuation, the easier it becomes until it is almost second nature.

Modified from http://www.howtodothings.com/hobbies/how-to-punctuate-dialogue