The direction of others' gaze is a strong social signal to their intentions and future behavior. Pioneering electrophysiological research identified cell populations in the primate visual cortex that are tuned to specific directions of observed gaze, but the functional architecture of this system is yet to be precisely specified. Here, we develop a computational model of how others' gaze direction is flexibly encoded across sensory channels within the gaze system. We incorporate the divisive normalization of sensory responses—a computational mechanism that is thought to be widespread in sensory systems but has not been examined in the context of social vision. We demonstrate that the operation of divisive normalization in the gaze system predicts a surprising and distinctive pattern of perceptual changes after sensory adaptation to gaze stimuli and find that these predictions closely match the psychophysical effects of adaptation in human observers. We also find that opponent coding, broadband multichannel, and narrowband multichannel models of sensory coding make distinct predictions regarding the effects of adaptation in a normalization framework and find evidence in favor of broadband multichannel coding of gaze. These results reveal the functional principles that govern the neural encoding of gaze direction and support the notion that divisive normalization is a canonical feature of nervous system function. Moreover, this research provides a strong foundation for testing recent computational theories of neuropsychiatric conditions in which gaze processing is compromised, such as autism and schizophrenia.