Theory of mind refers to the cognitive capacity to identify that one's own mental state is different than other persons', to understand one's own and other persons' mental states such as intentions, beliefs, demands and knowledge and to represent these mental states. Although the development of theory of mind capacities of humans begins with the basic abilities at age 3-4, a full capacity of theory of mind is achieved at age 11-12. The basic neuroanatomic localization of theory of mind is prefrontal cortex. Neural connections between this area and inferior parietal lobule, superior temporal sulcus and limbic-paralimbic areas are also important. Various theory of mind deficits have been shown to be associated with clinical presentation of many psychiatric and neurological disorders, such as autism, Asperger's syndrome, frontal cortex damage, dementia, schizophrenia, and personality disorders. Attempts have been carried out in order to find a relationship between theory of mind deficits and "behavioral signs", "passivity" phenomena, disorganized behaviors and paranoid delusions in schizophrenia. Studies have shown significant theory of mind deficits in schizophrenic patients rather than healthy controls. Moreover, these deficits have been proved to be independent of general cognitive deficits which are seen in schizophrenia. Theory of mind deficits in schizophrenia seem to be a trait feature, independent of the illness phase, since these deficits continue in a milder severity even during remission and it has been observed that non-psychotic relatives of first degree show similar deficits. The purpose of this review is to explain the concept of theory of mind, to summarize its development process in human beings, give information about the underlying neural mechanisms, and to emphasize the importance of theory of mind deficits in clinical symptoms of schizophrenia.