Social neuroscience is a flourishing, interdisciplinary field that investigates the underlying biological processes of social cognition and behaviour. The recent application of social neuroscience to psychiatric research advances our understanding of various psychiatric illnesses that are characterized by impairments in social cognition and social functioning. In addition, the upcoming line of social neuroscience research provides new techniques to design and evaluate treatment interventions that are aimed at improving patients’ social lives. This review provides a contemporary overview of social neuroscience in psychiatry. We draw together the major findings about the neural mechanisms of social cognitive processes directed at understanding others and social interactions in psychiatric illnesses and discuss their implications for future research and clinical practice.