This paper examines the correlations between ‘Theory of Mind’ (ToM) and neurocognitive performance, together with clinical and social functioning, in out-patients with schizophrenic disorders. It was hypothesised that, since the ability to make inferences about the environment and about other peoples’ mental states is a key ingredient of social competence, the assessment of ToM would correlate more strongly with current social functioning than with more traditional neurocognitive measures. ‘Independent raters’ assessed Theory of Mind, neurocognitive and clinical variables as well as community functioning in 44 subjects with schizophrenia. The neuropsychological measures were more closely associated with community functioning than with psychiatric symptoms. These associations remained evident when the effects of intelligence were controlled. Patients with a higher level of competence in making social inferences had better overall community functioning than those who showed less ability in this aspect of social cognition. In a regression model, the capacity to comprehend other people’s mental states (ToM-2) was among the best predictors of global social functioning, together with recent onset of illness, good verbal fluency and low levels of negative and positive symptoms. These results are consistent with other recent findings. ToM measures of social cognition may be a useful addition to neuropsychological assessment when developing programmes for reducing clinical impairments and improving the community functioning of subjects with schizophrenic disorders. Further studies are needed to verify the value of these measures as predictors of the successful application of specific psychosocial rehabilitation strategies.