Context exerts a powerful effect on cognitive performance and is clearly important for language processing, where lexical, sentential, and narrative contexts should differentially engage neural systems that support lexical, compositional, and discourse level semantics. Equally important, but thus far unexplored, is the role of context within narrative, as cognitive demands evolve and brain activity changes dynamically as subjects process different narrative segments. In this study, we used fMRI to examine the impact of context, comparing responses to a single, linguistically matched set of texts when these were differentially presented as random word lists, unconnected sentences and coherent narratives. We found emergent, context-dependent patterns of brain activity in each condition. Perisylvian language areas were always active, consistent with their supporting core linguistic computations. Sentence processing was associated with expanded activation of the frontal operculum and temporal poles. The same stimuli presented as narrative evoked robust responses in extrasylvian areas within both hemispheres, including precuneus, medial prefrontal, and dorsal temporo-parieto-occipital cortices. The right hemisphere was increasingly active as contextual complexity increased, maximal at the narrative level. Furthermore, brain activity was dynamically modulated as subjects processed different narrative segments: left hemisphere activity was more prominent at the onset, and right hemisphere more prominent at the resolution of a story, at which point, it may support a coherent representation of the narrative as a whole. These results underscore the importance of studying language in an ecologically valid context, suggesting a neural model for the processing of discourse.