The mirror neuron system (MNS) has been proposed to play an important role in social cognition by providing a neural mechanism by which others' actions, intentions, and emotions can be understood. Here functional magnetic resonance imaging was used to directly examine the relationship between MNS activity and two distinct indicators of social functioning in typically-developing children (aged 10.1 years+/-7 months): empathy and interpersonal competence. Reliable activity in pars opercularis, the frontal component of the MNS, was elicited by observation and imitation of emotional expressions. Importantly, activity in this region (as well as in the anterior insula and amygdala) was significantly and positively correlated with established behavioral measures indexing children's empathic behavior (during both imitation and observation) and interpersonal skills (during imitation only). These findings suggest that simulation mechanisms and the MNS may indeed be relevant to social functioning in everyday life during typical human development.