Humans commonly understand the unobservable mental states of others by observing their actions. Embodied simulation theories suggest that this ability may be based in areas of the fronto-parietal mirror neuron system, yet neuroimaging studies that explicitly investigate the human ability to draw mental state inferences point to the involvement of a “mentalizing” system consisting of regions that do not overlap with the mirror neuron system. For the present study, we developed a novel action identification paradigm that allowed us to explicitly investigate the neural bases of mentalizing observed actions. Across repeated viewings of a set of ecologically valid video clips of ordinary human actions, we manipulated the extent to which participants identified the unobservable mental states of the actor (mentalizing) or the observable mechanics of their behavior (mechanizing). Although areas of the mirror neuron system did show an enhanced response during action identification, its activity was not significantly modulated by the extent to which the observers identified mental states. Instead, several regions of the mentalizing system, including dorsal and ventral aspects of medial pFC, posterior cingulate cortex, and temporal poles, were associated with mentalizing actions, whereas a single region in left lateral occipito-temporal cortex was associated with mechanizing actions. These data suggest that embodied simulation is insufficient to account for the sophisticated mentalizing that human beings are capable of while observing another and that a different system along the cortical midline and in anterior temporal cortex is involved in mentalizing an observed action.