Background. Disturbed speech in schizophrenia may reflect pragmatic deficits of expressive language. Pragmatic comprehension deficits also occur in schizophrenia. This study investigated whether poor 'mind-reading' (i.e. a general difficulty with inferring and monitoring other people's thoughts) causes pragmatic language impairments of both expression and comprehension in patients with schizophrenia. Method. Mind-reading (or theory of mind) was tested in patients with schizophrenia and in healthy controls using a false-belief picture-sequencing task. Pragmatic comprehension skills were assessed using a test of non-literal speech interpretation. Clinical ratings of formal thought disorder (FTD) indexed the expressive language deficits of patients. To control for possible contributory effects of executive dysfunction, inhibitory control was tested using capture picture-sequences and executive-planning was tested using the Tower of London task. Results. False-belief picture-sequencing, understanding of irony and understanding of metaphors were all selectively impaired in the patients. Poor mind-reading (indexed by high error rate in sequencing false-belief stories) was associated with poor understanding of irony, but was unrelated to poor understanding of metaphors. Whereas poor appreciation of irony and poor mind-reading were associated with high ratings of positive formal thought disorder, high ratings of negative formal thought disorder were associated with poor understanding of metaphors and executive dysfunction. Conclusions. Whereas poor mind-reading may contribute to positive aspects of formal thought disorder and impaired appreciation of irony in patients with schizophrenia; negative features of formal thought disorder and poor understanding of metaphors appear better explained by abnormal semantics. Overall, the findings of this study support the view that the functional basis of formal thought disorder in schizophrenia is not unitary.