Theory of Mind (ToM) or mentalizing is the ability of individuals to determine the intentions and behavior of others. This ability is known to be compromised in schizophrenia and has been shown to fluctuate with symptom severity. Neuropsychological investigations into relatives of individuals with schizophrenia have shown that some relatives also show a deficit in this area of social cognition. In order to address this state and trait issue, we investigated the performance of high-risk relatives of individuals with schizophrenia to those of a matched control group (n = 13) on a blocked design visual joke fMRI paradigm. The task involved looking at two sets of cartoon jokes, one set which required mentalizing abilities to understand the jokes and another set that did not require such abilities. Relatives were divided into two groups based on the presence (HR+, n = 12) or absence (HR-, n = 12) of positive symptoms. The task provided robust activations across the groups in areas previously associated with mentalizing abilities, such as the PFC, precuneus, and temporal lobes. Significant between-group activations were observed in the PFC (primarily BA6, 8, and 9) with the HR- activating significantly greater than the HR+ in these regions. Both a secondary state-specific analysis and a third post hoc analysis further investigating state effects showed significant PFC between-group differences. This study is the first time relatives of individuals with schizophrenia have been imaged using a ToM paradigm, and the results provide evidence of both a state and state-mediated trait effect.