Internal dialogue can be more confusing than one would think. I don’t believe there’s a “right” way or “wrong” way to write internal dialogue, but I’ve seen plenty of people write it in different ways. I’ll admit, I have a preference, but that’s just my opinion.
There are different forms of internal dialogue – direct and indirect.
Direct Internal Dialogue
Direct refers to a character thinking to themselves in first person. This means these are thoughts they’re actually thinking, not thoughts we believe – or the narrator is telling us – they’re thinking. This can be written in two ways: using quotations or italics.
Using quotations makes it seem like the character is speaking aloud. It’s up to the dialogue tag to show that the character is actually thinking instead of speaking.
Using italics without quotations, but still using dialogue tags, makes it easy to differentiate between thoughts and speaking. Both are fine ways to write internal dialogue, but I prefer the italics. I find it easier to read and follow along.
Indirect Internal Dialogue
Similar to direct internal dialogue except it’s written in third person. This also means the narrator is telling us what a character is wondering, or may be wondering. So it’s not the exact thoughts from the character but we have an idea of what they may be thinking.