What type of irony occurs when the audience knows something that the characters do not?

Dramatic irony occurs when the audience has knowledge of a situation that the characters in a narrative do not. This form of irony creates tension and engages the audience, as they anticipate how the characters will react once they discover the truth. For example, in a play or a film, the audience may be aware that a character is walking into a trap while the character remains oblivious. This disparity between the audience's understanding and the characters' lack of insight enhances the emotional experience, making moments more impactful.

The other types of irony mentioned do not fit this scenario. Situational irony involves an outcome that is significantly different from what was expected, while verbal irony entails a speaker saying one thing but meaning another, often for humorous effect. Cosmic irony suggests a powerful force manipulating events, leading to a sense of fate or inevitability. Thus, dramatic irony is the best fit for the description provided in the question.