A famous line from the film The Court Jester, a 1956 musical comedy starring Danny Kaye and jointly written, directed and produced by Melvin Frank and Norman Panama.
The line comes from a long exchange between Hawkins, Maid Jean and the witch Griselda. After Hawkins, who has been impersonating a court jester, is knighted by the King in a plot to get rid of him, Princess Gwendolyn (romantically motivated) orders Griselda to protect him in his joust to the death against the more experienced Griswold. Griselda poisons one of the goblets for the pre-game toast and her and Maid Jean coach Hawkins on which is safe.
Hawkins: Where's the pellet with the poison?
Witch: In the vessel with the pestle!
Jean: Don't you see? The pellet with the poison's in the vessel with the pestle.
Witch: The chalice from the palace has the brew that is true!
Jean: It's so easy, I can say it!
Hawkins: Well then you fight him!
Witch: Listen carefully. The pellet with the poison's in the vessel with the pestle,
the chalice from the palace has the brew that is true.
The situation is complicated when one of the cups breaks and is replaced by a "flagon with a dragon", changing the mnemonic. Shortly thereafter, Griswold learns of the ruse from one of his men and joins in trying to memorize where the poison is.
Griswold: The pellet with the poison's in the flagon with the dragon, the pestle with
the pizzle... the pizzle with the f- the, the, the viss...
Of course, with the goblets in front of them they both carry on so much that the King loses his patience and orders the toast be skipped entirely. Hawkins wins the joust, but only by virtue of his armor having been accidentally magnetized by a bolt of lightning (the magnetic pull causes Griswold to fall from his horse).
The whole phrase ("The pellet with the poison's in the vessel with the pestle, the chalice from the palace has the brew that is true") was one of the 400 lines nominated for the American Film Institute's 100 Years ... 100 Movie Quotes list, though it did not survive the final selection.
According to Danny Kaye's daughter Dena, people would often stop Kaye on the street to recite the entire speech to him.
A transcript of the entire exchange, along with a video of the scene, can be found here.
A couple of noders have mentioned the British TV series 'Allo! 'Allo! did a parody of the scene, which you can read here.
Factual details courtesy of Wikipedia & IMDB.