Research has suggested that the core handicaps of autism result from a specific impairment in theory of mind (ToM). However, this account has been challenged by the finding that a minority of autistic subjects pass 1st- and even 2nd-order ToM tests while remaining socially handicapped. In the present study, able autistic subjects who failed ToM tasks, those who passed 1st-order, and those who passed 2nd-order tasks were tested with a battery of more naturalistic and complex stories. Autistic subjects were impaired at providing context-appropriate mental state explanations for the story characters' nonliteral utterances, compared to normal and mentally handicapped controls. Performance on the stories was closely related to performance on standard ToM tasks, but even those autistic subjects who passed all ToM tests showed impairments on the more naturalistic story materials relative to normal adult controls.