Mounting evidence suggests that social interaction changes how communicative behaviors (e.g., spoken language, gaze) are processed, but the precise neural bases by which social-interactive context may alter communication remain unknown. Various perspectives suggest that live interactions are more rewarding, more attention-grabbing, or require increased mentalizing—thinking about the thoughts of others. Dissociating between these possibilities is difficult because most extant neuroimaging paradigms examining social interaction have not directly compared live paradigms to conventional “offline” (or recorded) paradigms. We developed a novel fMRI paradigm to assess whether and how an interactive context changes the processing of speech matched in content and vocal characteristics. Participants listened to short vignettes—which contained no reference to people or mental states—believing that some vignettes were prerecorded and that others were presented over a real-time audio-feed by a live social partner. In actuality, all speech was prerecorded. Simply believing that speech was live increased activation in each participant’s own mentalizing regions, defined using a functional localizer. Contrasting live to recorded speech did not reveal significant differences in attention or reward regions. Further, higher levels of autistic-like traits were associated with altered neural specialization for live interaction. These results suggest that humans engage in ongoing mentalizing about social partners, even when such mentalizing is not explicitly required, illustrating how social context shapes social cognition. Understanding communication in social context has important implications for typical and atypical social processing, especially for disorders like autism where social difficulties are more acute in live interaction.