Interpersonal communication in everyday encounters is informed by our inferences about the inner states of other people. As an umbrella term, empathy subsumes the mechanisms that allow us to grasp these inner states, both emotionally (affective empathy) and cognitively (via mentalizing, also known as cognitive empathy). In this chapter, we first illuminate the functionality of these processes in observational contexts and discuss their underlying neural architecture. Second, we elucidate the complex, intertwined engagement of empathy and mentalizing during interactions “in the wild.” Finally, we spotlight how the underlying brain mechanisms help us to extract meaning from our social encounters. Overall, we argue that empathy and mentalizing serve the semiotic function of contextualizing intersubjective signals, thereby giving rise to meaning.