Few studies have directly investigated the relationship between theory of mind (ToM) deficits and social functioning in schizophrenia. At the same time, the impact of mental state decoding tasks on social dysfunction has also not yet been investigated. In this study, the relationship between theory of mind deficits and social functioning was investigated among 50 patients with schizophrenia. A mental state decoding task known as 'The Eyes test' and a mental state reasoning task 'The Hinting test' were applied to assess ToM abilities, while the Social Functioning Scale (SFS) was used to assess social functioning. Non-ToM neurocogitive tests were also given to the patients. Results of the study show how theory of mind and working memory performances of patients with good functional outcome proved to be significantly better than those of inadequately functioning patients. Results also indicate that performance on the Eyes test was the best predictor of social functioning and that negative symptoms also contributed to poor social functioning. It is concluded in this study that mental state decoding skills appear to be the most important cognitive mediator of social functioning. (c) 2005 Elsevier Ireland Ltd. All rights reserved.