The ultimate goal of biological motion perception is to be able to understand actions so as to provide an answer to the question, “Who did what to whom and why?” This inference capacity enables humans to go beyond the surface appearance of behavior in order to successfully interact with others and with the environment. In addition to its functional importance, understanding biological motion bridges several major fields, including perception, reasoning, and social cognition. However, despite its paramount role in human perception and cognition, only limited progress has so far been made in understanding biological motion. After reviewing the relevant literature, this essay argues that future research needs to identify the contributions of three basic processes involved in understanding biological motion: perception of animacy, causality, and intention. The involvement of these basic processes needs to be investigated both in the typical healthy population as well as in populations with mental disorders, such as autism spectrum disorders and schizophrenia. We also suggest that a productive research approach should focus on more interactive actions of the sort often observed in the natural social environment, rather than solely using the single-actor displays that have been typical in previous work. It is further emphasized that there is a need for a theoretical and computational framework within which these different types of processing can be united. We propose that the predictive coding framework provides a good candidate.