Mentalization is a new term in psychiatry, introduced for the first time by Peter Fonagy in 1991. This ability allows a person to infer mental states of other people. The theory of mentalization was devised with the intention of explaining psychopathology of borderline personality disorder and thus developing a succesful psychotherapy to treat the disorder. Important premise of the theory is that mentalization is a developmental achievement a child acquires in a relationship of secure attachment with the care-giver. During early psychic development, the child goes through several modes of psychic functioning. Psychic equivalence is the first: inner and outer reality are perceived as one and the same. The next developmental stage is pretend mode: the child pretends that reality is different from what it really is and this roleplay occurs in a game. Successful integration of these two modes of functioning represents the final stage; the inner and the outer worlds are different and connected. In order to successfully acquire this stage, the child needs marked contingent mirroring of its needs by the caregiver. This facilitates the development of dopaminergic and oxcitocinergic system, as well as specific areas of frontal cortex in charge of emotional control, which were recognized as the neurobiological basis of mentalization. The theory of mind, which is connected to mentalization, has revealed through an experimental paradigm, the so called „false-belief task“, that children acquire this ability between four and six years of age. Genetic predispositon, neglect and trauma may hinder the development of mentalization and the child's attachment system, making the child hypersensitive and dysfunctional; it inhibits the neural systems of mentalization, causing the person to develop problematic social relationships because the affected people cannot correctly infer the mental states of others and cannot mentalize about thoughts, emotions, intentions and beliefs of others. These are the characteristic traits of borderline personality disorder. Somatizing patients and patients with anorexia nervosa have impaired mentalization as well. Mentalization based treatment uses the insights of theory of mentalization to treat patients with borderline personality disorder. The treatment is flexible and can be used with other forms of psychotherapy. Research shows that mentalization based treatment is more successful in the long term than standard psychiatric care, and also requires lower costs of treatment. Theory of mentalization and mentalization based treatment present a promising phenomenon which suggests that successful therapy of personality disorders might develop in the near future.