Social interaction is profoundly affected in the behavioural form of frontotemporal dementia (bvFTD) yet there are few means of objectively assessing this. Diagnosis of bvFTD is based on informant report, however a number of individuals with a clinical profile consistent with the disease have no imaging abnormality and seem to remain stable, with doubt about the presence of underlying neurodegenerative pathology. We aimed to quantify aspects of the behavioural disorder and link it to the underlying level of atrophy in socially relevant brain regions. We tested individuals with either bvFTD (N = 26) or Alzheimer's disease (N = 9) and 16 controls using The Awareness of Social Inference Test (TASIT) to assess their ability to identify emotion and sarcasm in video vignettes. A subset of bvFTD patients (N = 21) and controls (N = 12) were scanned using MRI within 6 months of assessment. There was marked impairment in the ability of bvFTD patients whose scans showed abnormalities to recognize sarcastic, but not sincere statements. Their capacity to interpret negative emotion was also impaired, and this appeared to be a major factor underlying the deficit in sarcasm recognition. Clinically diagnosed bvFTD patients whose scans were normal, Alzheimer's disease patients and controls had no difficulty in appreciating both types of statement. In a multivariate imaging analysis it was shown that the sarcasm (and emotion recognition) deficit was dependent on a circuit involving the lateral orbitofrontal cortex, insula, amygdala and temporal pole, particularly on the right. Performance on a more global test of cognitive function, the Addenbrooke's Cognitive Examination did not have a unique association with these regions. The TASIT is an objective test of social dysfunction in bvFTD which indexes the frontotemporal volume loss in bvFTD patients and provides an objective measure for separating behavioural patients who are likely to decline from those who may remain stable. These results provide additional evidence for the role of the orbitofrontal cortex and related structures in the processing of socially relevant signals, particularly those where negative emotion recognition is important.