Every couple of years this topic seems to come up in one of my games, namely someone wants to play a member of the party that is an evil PC. Most of the time I simply will not allow it, but occasionally a good concept comes my way and the evil PC enters the campaign. The question always is, what do you do with that character? Evil PCs have different motivations than good aligned heroes, and are not always moved by wealth or fame like other PCs. Usually when someone decides they want to play evil, its not just to be a money-grubbing villain or anti-hero, they want to do bad stuff, or at least work for an evil agency of some type.
Once you have allowed an evil PC into the campaign, the next question is what to do with it. You don’t have to do anything special, you can just let the evil PC develop and play out as any other character, however you would then be missing out on some great opportunities for storytelling, not to mention letting less than pleasant things into the game without some form of payback for the extra work and headache. Four good options are to play out a plot arc based on redemption, descent into madness, betrayal, or just retribution.
A redemptive storyline is the most positive option to play, but requires a good role-player to pull off. Basically, you should sit down with the player of the evil PC and determine why he is evil and what will turn him towards the light. This can either be a long process where the cause of the character's evil inclinations is slowly worked away, or possibly a face turn situation. In a face turn situation, the PC has a moment of revelation where he is forced to confront his evil and decides to turn away from it. However the decision to become one of the good guys happens, the road to redemption should be a long one fraught with temptation and peril. Eventually the PC faces his demons (possibly literally), makes good the damage he has done (or learns to live with the guilt and shame) and becomes a good guy in the campaign. Just keep in mind that one good act of redemption does not make, no matter how big that act (unless it is self-sacrificing, the redemption in death trope is a good one), a good aligned hero.
One of the most difficult story lines to play out, but one that can be a lot of fun, is to have the evil PC descend into madness. This is a classic in some genres; the bad deeds and horrible acts wear away at the character's sanity until the inevitable break with reality occurs. At this point the PC is thoroughly evil, but may not be entirely responsible for his actions as he is now insane. Be careful not to creep out the other people at the table, but make sure it is obvious to the other characters that one of their own is now bat-shit crazy. This sets up a couple of story lines, such as the other PCs having to put down their rapid-dog companion, seek out a cure, or possibly the evil PC finds redemption through madness.
Betrayal is a dangerous plot arc to follow, and can lead to bad feelings amongst the players. Basically, set it up before hand that the evil PC will at some point betray the party to their enemies. This should be something big, not a petty turning them over to the local tribe of orcs, but instead something along the lines of handing the artifact they have been questing for to the campaign's big bad guy. This should lead to the other PCs hunting down and brining the evil PC to justice, or if they fail some other force for good within the campaign will do the dirty work for them.
Finally, the evil PC can be allowed to run amok with the understanding that at some point law and order will catch up to him. This might be in the form of another PC, or it may be the local authorities, but some how, some way just retribution for his evil acts will come down upon him. Playing a character who it is predetermined will be taken down is not for everyone's liking, but it does set up a nice plot arc. Consider what the reaction of the other characters will be when one of their number is imprisoned, charged with a crime, or pursued by bounty hunters. Will they defend their companion, or turn him over? This sort of situation is one that good drama, and good role-playing, is made of.