How we engage in mental state reasoning remains a contentious issue, reflected in the debate between theory-theorists, who argue that we deploy theory-based rules, and simulation theorists, who argue that such reasoning is subserved by simulation processes. The present study examined whether theory-based or simulation-based reasoning is adopted in regret-oriented counterfactual scenarios involving mental state inferences. Participants thought aloud while reasoning through such scenarios from the perspective of themselves, themselves and another, or two other individuals. The scenarios also manipulated the controllability of event outcomes. Results revealed more theorizing in the uncontrollable than the controllable scenarios, and more simulation in the controllable than uncontrollable ones. More theorizing was also observed in the “other-and-other” than the “self-only” condition. These findings highlight the value of adopting a hybrid model of mental state reasoning, where theorizing and simulation are integrated within a common framework, with such processing being deployed in a context-sensitive manner.