The ideas of Vygotsky [Vygotsky, L. S. (1987). "Thinking and speech." In "The collected works of L. S. Vygotsky," (Vol. 1). New York: Plenum. (Original work published 1934.)] have been increasingly influential in accounting for social-environmental influences on the development of social understanding (SU). In the first part of this article, I examine how Vygotskian ideas have to date been recruited to explanations of the development of SU. Next, I present a model of SU development which draws on two implications of Vygotsky's ideas: the importance of semiotic mediation for mental functioning, and the dialogic nature of the higher mental functions. I then consider the value of the proposed model in accounting for evidence from three areas of enquiry: the typical development of SU in infancy and early childhood, relations between individual differences in SU and social-environmental variables, and atypical development. The model is suggested to be particularly helpful in understanding the transition from intentional-agent to mental-agent understanding, and the role of language in SU. Remaining challenges include a need to specify further the cognitive processes underlying internalization, and to gather more extensive evidence on the roles of typical and atypical social experience in SU development.