In our daily lives, we constantly engage in reciprocal interactions with other individuals and represent ourselves in the context of our surrounding social world. Within social interactions, humans often experience interpersonal emotions such as embarrassment, shame, guilt, or pride. How interpersonal emotions are processed on the neural systems level is of major interest for social neuroscience research. While the configuration of laboratory settings in general is constraining for emotion research, recent neuroimaging investigations came up with new approaches to implement socially interactive and immersive scenarios for the real-life investigation of interpersonal emotions. These studies could show that among other brain regions the so-called mentalizing network, which is typically involved when we represent and make sense of others’ states of mind, is associated with interpersonal emotions. The anterior insula/anterior cingulate cortex network at the same time processes one’s own bodily arousal during such interpersonal emotional experiences. Current research aimed to explore how we make sense of others’ emotional states during social interactions and investigates the modulating factors of our emotional experiences during social interactions. Understanding how interpersonal emotions are processed on the neural systems level may yield significant implications for neuropsychiatric disorders that affect social behavior such as social anxiety disorders or autism.