By observing other people, we can often infer goals and motivations behind their actions. This study examines the role of the action observation network (AON) and the mentalising network (MZN) in the perception of rational and irrational actions. Past studies in this area report mixed results, so the present paper uses new stimuli which precisely control motion path, the social form of the actor and the rationality of the action. A cluster in medial prefrontal cortex and a large cluster in the right inferior parietal lobule extending to the temporoparietal junction distinguished observation of irrational from rational actions. Activity within the temporoparietal region also correlated on a trial-by-trial basis with each participant's judgement of action rationality. These findings demonstrate that observation of another person performing an irrational action engages both action observation and mentalising networks. Our results advance current theories of action comprehension and the roles of action observation and mentalising networks in this process.