Two- and three-year-old children were asked why a speaker named objects falsely. Most produced explanations in terms of the speaker's intention to joke. This implies a sensitivity to two distinct levels in language: the proposition itself and the propositional attitude. Children with learning difficulties showed a similar competence. In contrast, most children with autism failed to explain such false statements in these terms, instead merely describing them as "wrong." This was not simply due to a metalinguistic deficit, as they correctly answered questions about what a speaker had said the object was. These results suggest the normally developing toddler has a remarkable facility in processing propositional attitudes, while children with autism do not; and that such an ability is broadly independent of general intelligence.