In contemporary philosophy and psychology there is an ongoing debate around the concept of theory of mind. Theory of mind concerns our ability to understand another person. The two approaches that dominate the debate are “Theory Theory” (TT) and “Simulation Theory” (ST). This paper explores the connection between theory of mind and hermeneutics. Although both speak of the nature of understanding, and the way we gain and organize our knowledge of others, certain aspects of Schleiermacher’s hermeneutics reflect a theory approach, long before TT itself was developed. In contrast, Dilthey’s hermeneutics reflects a simulation approach. In contrast to both of these approaches, I propose a contextual theory, as a parallel to Gadamer’s work in hermeneutics, and as a view that offers the basis for an important critique of both TT and ST.