When reading a narrative, comprehension and retention of information benefit considerably from the use of situation models--coherent representations of the characters, locations, and activities described in the text. Here we used functional magnetic resonance imaging (fMRI) to explore the neural mechanisms supporting situation model processing. Participants read blocks of sentences that were either unrelated to one another or formed coherent narratives. A timecourse-based approach was used to identify regions that differentiated narrative-level comprehension from sentence-level comprehension. Most brain regions that showed modulation of activation during narrative-level comprehension were also modulated to a lesser extent during sentence-level comprehension, suggesting a shared reliance on general coherence-building mechanisms. However, tentative evidence was found for narrative-specific activation in dorsomedial prefrontal cortex. Additional analyses identified spatiotemporally distinct neural contributions to situation model processing, with posterior parietal regions supporting situation model construction and frontotemporal regions supporting situation model maintenance. Finally, a set of subsequent memory analyses demonstrated that the boost in comprehension and memory performance observed for coherent materials was attributable to the use of integrative situation models rather than lower-level differences in sentence-level or word-level encoding. These results clarify the functional contributions of distinct brain systems to situation model processing and their mapping onto existing psychological models of narrative comprehension.