Theory of Mind (ToM) impairment has repeatedly been found in paranoid schizophrenia. The current study aims at investigating whether this is related to a deficit in ToM (undermentalizing) or an increased ToM ability to hyperattribute others' mental states (overmentalizing). Mental state attribution was examined in 24 patients diagnosed with schizophrenia (12 acute paranoid (APS) and 12 post-acute paranoid (PPS)) with regard to positive symptoms as well as matched healthy persons using a moving shapes paradigm. We used 3-T-functional magnetic resonance imaging (fMRI) to provide insights into the neural underpinnings of ToM due to attributional processes in different states of paranoid schizophrenia. In the condition that makes demands on theory of mind skills (ToM condition), in patients with diagnosed schizophrenia less appropriate mental state descriptions have been used, and they attributed mental states less often to the moving shapes than healthy persons. On a neural level, patients suffering from schizophrenia exhibited within the ToM network hypoactivity in the medial prefrontal cortex (MPFC) and hyperactivity in the temporo-parietal junction (TPJ) as compared to the healthy sample. Our results indicate both undermentalizing and hypoactivity in the MPFC and increased overattribution related to hyperactivity in the TPJ in paranoid schizophrenia, providing new implications for understanding ToM in paranoid schizophrenia.