Based on caregiver report, children with histories of prenatal alcohol exposure show significant difficulty with social functioning, but little is known about their social cognition. The current study assessed the social information processing skills of school-age children with histories of heavy prenatal alcohol exposure using a paradigm based on Crick and Dodge's reformulated six-stage model. Fifty-two children (aged 7 to 11) with and without heavy prenatal alcohol exposure were compared using a structured interview measure of social information processing involving 18 videotaped vignettes of children in Group Entry and Provocation situations. Scores were generated for each of the six steps: encoding, attribution, goal clarification, response generation, response evaluation, and enactment. Group differences in performance at each step were examined through univariate analysis of variance techniques and age and sex were modeled when relevant. The relationships between social information processing variables and related cognitive and behavior constructs were examined through canonical correlation. Children with heavy prenatal alcohol exposure demonstrated significant impairments in social information processing in all six steps across Group Entry and Provocation situations. Areas of impairment differed by the type of social situation, which is consistent with the previously reported situational specificity of social information processing. Specifically, alcohol-exposed children had difficulty on the goal, response generation, and response evaluation steps in Group Entry situations, and difficulty with encoding, attribution, response evaluation, and enactment during Provocation situations. Strong correlations with a measure of critical thinking and problem solving skills support the concurrent validity of the social information processing measure. Stronger social information processing skills were related to higher intelligence, stronger executive functioning, improved social functioning, fewer disruptive behavior problems, and lower levels of depression. Deficits in social information processing in children with prenatal alcohol exposure are likely related to alterations in brain structure and function as well as postnatal environmental factors. Such deficits are likely to result in significant problems with everyday functioning and poor quality of life. Social skills deficits, including social information processing deficits, are amenable to intervention and results from the current study may help in improving interventions for children with prenatal alcohol exposure.