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I'm writing a short story in which a story teller (the possibly-historic Aesop) addresses an audience. He tells his short story (within my short story), after which I will describe dialog between him and his audience. I began formatting the dialog by placing Aesop's story in double quotes, and using single quotes within the double quotes to indicate what the characters in the story within the story are saying, e.g.

A cloaked man, short of stature, lumbered toward his audience. He began his tale with the voice of a sun-baked toad. “The sun slowly climbed above the horizon," he croaked, "revealing an ocean shrouded in mist. Captain Nafplios could scarcely see the nearest trireme half a ships-length to port. There was a splashing in the water, loud and insistent. Nafplios strode to the rail of his ship and looked down into the dark green depths. An eel peered out of the depths up at him. It raised its head out of the water and laughed, its voice filled with venomous mockery, ‘today shall be your last. Before even the mist clears, I shall feed upon your corpses.’ Nafplios drew a deep breath, his chest thrust proudly toward the heavens. ‘You know not of what you speak, for the fleet of Athens cannot be defeated.’

Normally when writing dialog, I have learned to start a new paragraph when changing speakers. I have done this for Aesop, but not for the characters within the story that Aesop is telling (within my story).

How can I format both the dialog (Aesop and his audience) and the dialog-within-dialog (speakers in Aesop's story) so that it is clear to my readers?

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I can think of a few options:

  • Indent the story-within-a-story and treat dialogue normally (just double quotes).
  • Put your Aesop section in italics, the story-within-a-story in book, and treat all dialogue normally.
  • Use some kind of scene break formatting (extra returns, a dingbat, a string of * * * * ) to indicate "this is the story within the story" and treat all dialogue normally.

If the story-within-a-story starts in the Aesop section, use nested quotes, but then when you break to the other section, resume normal quotes. If this were TV, imagine you're shifting scenes from seeing Aesop tell the story to actually watching the characters themselves act out the story.

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