mayaa tatamidam sarvam jagadavyaktamoortinaa |
matsthaani sarva bhootaani na chaaham teshvavasthitaha || 4 ||

This entire universe is pervaded by my unmanifest state. All beings are based in me, I am not based in them.
mayaa : my
tatam : pervaded
idam : this
sarvam : entire
jagat : universe
avyakta : unmanifest
moortinaa : state
matsthaani : based in me
sarva : all
bhootaani : beings
na : not
cha : and
aham : I
teshu : in them
avasthitaha : based
This shloka and the next are the crux of the teaching in this chapter. Shri Krishna makes three core points: that the entire universe is pervaded by his unmanifest state, that all beings are based in him, and that he is not based in them. Let us first take a step back to understand the context of this teaching before we delve into these three points.
The eighth chapter described meditative techniques that we had to follow throughout our lives in order to attain Ishvara, so that we can be liberated from the cycle of creation and dissolution. Now, Shri Krishna reveals a secret that will enable us to immediately gain access to Ishvara 24/7. And unlike other techniques described so far, we do not have to do any action. We just have to know.
What is this secret knowledge? Let us start with the first point. Shri Krishna says that Ishvara is present in every living and non-living being within this universe. If that’s the case, then we do not need to put in any extra effort. Once we train ourselves to view Ishvara in everything, we will gain access to him 24/7. We will not need to do any extra physical or mental activity to make that happen. But if it were that simple, why cannot we put it into practice immediately? It is because we have been preconditioned since time immemorial to see everything but Ishvara. Removing this preconditioning is the topic of the Gita.
The second point made by Shri Krishna is that all beings are based in him. Let us bring up the example of the ocean and the waves to understand this point. A five year old girl sitting on the beach will look at the waves, the foam and the ripples and conclude that they are independent things. But her mother knows that all of those shapes are created because of the ocean. Also, the girl who has to inquire about where these shapes come from. The mother does not have to do anything. She just knows that everything is nothing but water in the ocean. So the mother will tell her, “that’s just the ocean”.
Now, let’s say the girl sees a ripple in a lake instead of the ocean. She points to it and says “that’s the ocean”. The mother will now enhance her statement slightly by saying “that is not the ocean, that is a ripple. It is just a shape taken by water, which is in the ocean and in the lake”. Water is an abstract concept which a child slowly learns by example.
Similarly, we may begin to think that Ishvara is resident in an idol, or a saint, or a holy place. Like the ripple, they are names and forms. Even Arjuna would have found it hard to believe that Shri Krishna, who is in front of him, can pervade the entire universe. So therefore, Shri Krishna says that no visible entity can ever contain Ishvara who is beyond name and form. The true nature of Ishvara is formless. This is the third point in this shloka.
Still, a question remains. Just like we still see waves in the ocean even after knowing that they are water, we still come across thousands of names and forms everyday. Many of those names and forms are people that we interact with, speak with, work with and so on. Aren’t those people “real”? How do we reconcile this? Shri Krishna addresses this confusion in the next shloka.