Introduction It has been proposed that theory of mind (ToM) deficits underlying difficulties in taking the perspective of others may substantially contribute to insight impairment in schizophrenia. The present study aimed to explore the effect of ToM deficits on insight impairment independently of co-existent neurocognitive deficits and symptom severity in chronic schizophrenia. Methods Fifty-eight chronic patients with schizophrenia and 56 matched healthy participants were assessed with the Schedule for the Assessment of Insight (SAI–E) along with a series of ToM tasks and a comprehensive battery of neuropsychological measures. Symptoms were measured with the Positive and Negative Syndrome Scale and the Calgary Depression Scale for Schizophrenia. Results ToM impairment explained a substantial proportion of variance in overall insight and its three major components: awareness of illness, relabelling of symptoms and treatment compliance. Moreover, the effect of ToM deficits on insight remained significant even after controlling for all neurocognitive factors and symptom ratings. Regression analysis showed that symptoms and cognitive deficits also contribute to impaired insight in schizophrenia. General intellectual ability was negatively associated with both overall insight and relabelling of symptoms. Executive functions were negatively associated with relabelling. Conclusion Our findings confirm that ToM deficits negatively affect insight independently of neurocognitive deficits and symptom severity in chronic schizophrenia. The effect of ToM deficits on insight should be further examined in the broader context of the failures in metacognition and their relationships with insight impairment in schizophrenia.