Theory of Mind (ToM) refers to the ability to perceive others’ mental states. Lower ToM has often been associated with poorer functional outcomes in schizophrenia, making it an important treatment target. However, little is known about the underlying neural mechanisms associated with ToM impairments in early course schizophrenia. This study aimed to validate the False Belief task to measure ToM in schizophrenia and to identify aberrant brain activity associated with impairments. 36 individuals with early course schizophrenia and 17 controls were administered the Hinting Task and performed a functional magnetic resonance imaging (fMRI) False Belief task. Between-group differences were examined in a priori regions of interest (ROIs) known to be associated with ToM tasks: medial prefrontal cortex, ventral medial prefrontal cortex, and both the left and right temporal parietal junction (TPJ). We observed a significant positive association between Hinting Task performance and False Belief accuracy, validating the False Belief task as a measure of ToM. Compared to controls, individuals with schizophrenia exhibited reduced brain activation in all four ROIs during the fMRI False Belief task. Furthermore, task-related activations in bilateral TPJs were shown to be positively associated with ToM abilities regardless of diagnosis. Individuals with schizophrenia with lower performance on the False Belief task showed significant reductions in task-related activation in the bilateral TPJ compared to controls, while reductions were not significant for those with higher performance. Our findings suggest that lower neural activity in the bilateral TPJ are associated with ToM impairments observed in individuals with early course schizophrenia.