Stories are essential to human communication, thus understanding stories is critical to modeling human intelligence. In order to understand a story from multiple characters' perspectives, a reader must form mental models representing each character's knowledge and beliefs. Building on the Genesis story-understanding system, I developed the Perspectives Expert, which enables Genesis to form detailed mental models of characters in a story. I started by annotating stories with characters' entrances and exits, treating stories as theatrical plays. I assumed that characters observe events only while onstage, and I used their observations to populate mental models. Then, inspired by human reasoning, I eliminated explicit stage directions and enabled Genesis to keep track of characters' locations and levels of consciousness. Equipped with this mental-modeling ability, Genesis can retell stories from different characters' perspectives, answer reading-comprehension questions to demonstrate understanding, and perform the first steps of conflict reconciliation by detecting and explaining opposing viewpoints.