While individuals with autism spectrum disorders (ASD) are typically impaired in interpreting the communicative intent of others, little is known about the neural bases of higher-level pragmatic impairments. Here, we used functional MRI (fMRI) to examine the neural circuitry underlying deficits in understanding irony in high-functioning children with ASD. Participants listened to short scenarios and decided whether the speaker was sincere or ironic. Three types of scenarios were used in which we varied the information available to guide this decision. Scenarios included (i) both knowledge of the event outcome and strong prosodic cues (sincere or sarcastic intonation), (ii) prosodic cues only or (iii) knowledge of the event outcome only. Although children with ASD performed well above chance, they were less accurate than typically developing (TD) children at interpreting the communicative intent behind a potentially ironic remark, particularly with regard to taking advantage of available contextual information. In contrast to prior research showing hypoactivation of regions involved in understanding the mental states of others, children with ASD showed significantly greater activity than TD children in the right inferior frontal gyrus (IFG) as well as in bilateral temporal regions. Increased activity in the ASD group fell within the network recruited in the TD group and may reflect more effortful processing needed to interpret the intended meaning of an utterance. These results confirm that children with ASD have difficulty interpreting the communicative intent of others and suggest that these individuals can recruit regions activated as part of the normative neural circuitry when task demands require explicit attention to socially relevant cues.