Borderline personality disorder (BPD) is a severe psychiatric condition of undetermined brain underpinnings, which involves profound emotion regulation deficits and interpersonal impairment. To elucidate biopsychological markers of the disorder, we performed two studies: i.) assessing empathy and social cognition and ii.) measuring the psychophysical properties and functional brain correlates of empathic functioning in a total of fifty-one affected patients and 50 age- and gender-matched controls. In the behavioral study we applied the Multifaceted Empathy Test (MET), a new, ecologically valid measure to assess cognitive (i.e., social cognition) and emotional (i.e., empathic concern) empathy to a subset of participants. In the second study, functional Magnetic Resonance Imaging and skin conductance measurements were performed while participants took a scanner-adapted version of the MET. Patients with BPD showed impairments in cognitive and emotional empathy. Brain responses during cognitive empathy were significantly reduced in patients compared to controls in the left superior temporal sulcus and gyrus (STS/STG), where this reduction was associated with levels of intrusive symptomatology in the BPD group. During emotional empathy, patients with BPD exhibited greater brain activity than controls in the right middle insular cortex, a response that was associated with skin conductance responses in the patients. Results indicate that altered functioning of the STS/STG and insula represents pathophysiological mediators for reduced empathy in BPD, with an important role for intrusive symptomatology and levels of arousal. The findings thus support a conceptualization of BPD as involving deficits in both inferring others' mental states and being emotionally attuned to another person.