Humans experience vicarious embarrassment when they observe other’s mishaps in public settings, even when the protagonist is not embarrassed at all. Though neural correlates of vicarious embarrassment have been studied before, it is yet poorly understood how they are influenced by egocentric or allocentric processes of perspective-taking. In the present study we examined the effects of deliberate allocentric and egocentric perspectives during the evaluation of others’ public mishaps that pose a threat to the protagonist’s reputation. Forty-three participants were shown sketches depicting a protagonist’s mishaps and were asked to rate either their own vicarious embarrassment as observers (egocentric perspective) or the protagonist’s embarrassment (allocentric perspective). Using functional magnetic resonance imaging, we found that observing others’ mishaps engaged the anterior insula, anterior cingulate cortex and medial prefrontal cortex, irrespective of the adopted mental perspective. Further, as part of the mentalizing network, the right middle temporal gyrus and right temporo-parietal junction were exclusively engaged when participants adopted an allocentric perspective while observing others’ mishaps. Activation within bilateral areas of the inferior parietal cortex extending to the somatosensory cortex varied as a function of the protagonist’s awareness of the blunder and the adopted perspective. In this study, we for the first time dissociate regions within the mentalizing network that contribute to a rather spontaneous versus a rather deliberate and motivated act of understanding other’s mental states in the context of vicarious embarrassment.