Rainbow is caused by dispersion of sunlight  by tiny water droplet present in atmosphere.Water vapours in the atmosphere acts like a prism ,splitting the sunlight into its constituent colours (I.e.VIBGYOR) which seen by us as a rainbow The steps are 1) dispersion or splitting of light in its constituent 2)refraction 3)scattering.

Rainbow is a natural spectrum appearing in the sky after a rain shower. It is caused by the dispersion of sunlight by tiny water droplets, present in the atmosphere. A rainbow is always formed in a direction opposite to that of Sun. The water droplets act like small prism. As you know that prism makes to split white light into the band of colours and makes the different colours of light to bend through different angles with respect to the incident ray, as they move or pass through Prism. They [Prism (tiny water droplets acts as a prism)] refract and disperse the incident sunlight, they reflect it internally, and finally refract it again when it comes out of the raindrop. Due to the dispersion of light and internal reflection, different colours appear to the observer's eye.


Rainbow appears on a Sunny day when you look at the sky through a waterfall or through a water fountain, when the Sun behinds you.