The neurocognitive components of Theory of Mind reasoning remain poorly understood. In particular the role of the posterior medial prefrontal cortex in the processing of other's mental states such as beliefs that are incongruent with one's own knowledge of reality is not clear-cut. It is unknown whether this region is involved in computing discrepant mental states or in subsequently resolving a response conflict between the discrepant others' and one's own beliefs. To test this, we adapted a false belief paradigm for the separate inspection of functional brain activity related to (1) the computation of diverging beliefs and (2) the subsequent consideration and selection of another's or one's own belief. Based on statistical parametric findings from functional neuroimaging, we employed dynamic causal modelling combined with Bayesian model selection to further characterize the interplay of resulting brain regions. In the initial computation of diverging beliefs, the posterior medial prefrontal cortex (pMPFC) and the bilateral temporoparietal cortex were crucially involved. The findings suggest that the bilateral temporal cortex engages in the construction and adjustment of diverging mental states by encoding relevant environmental information. The pMPFC inhibits this stimulus-bound processing which helps to compute discrepant mental states and process another's false belief decoupled from one's own perception of reality. In the subsequent question phase the right temporoparietal cortex showed increased activity related to switching to and reconsidering another's beliefs in order to select the correct response. Hum Brain Mapp 35:2950–2965, 2014. © 2013 Wiley Periodicals, Inc.