One of my best university tutors always told me to treat the setting like another character, and give the setting its own dialogue. There is more than one way to do this.
If your characters are talking, give them something to do, in the appropriate setting. Two family members are discussing a third member? Have them making dinner in the kitchen in the family home … and the setting and dialogue will act together like musical instruments … in harmony.
Think about contrasting the setting and the dialogue; this creates tension. People talking about saving the environment, while sitting in the middle of a big city and eating fast food, sends a very different message to a clutch of tired, wet people chatting while standing knee deep in an oil spill, trying to save dying birds. How would the dialogue change between these two settings?
In a fantasy setting … does it grate on your ‘ears’ if people talk in a modern manner. Why? Or why not?