Background: Environmental factors have been associated with psychosis but there is little qualitative research looking at how the ongoing interaction between individual and environment maintains psychotic symptoms. Aims: The current study investigates how people with persecutory delusions interpret events in a virtual neutral social environment using qualitative methodology. Method: 20 participants with persecutory delusions and 20 controls entered a virtual underground train containing neutral characters. Under these circumstances, people with persecutory delusions reported similar levels of paranoia as non-clinical participants. The transcripts of a post-virtual reality interview of the first 10 participants in each group were analysed. Results: Thematic analyses of interviews focusing on the decision making process associated with attributing intentions of computer-generated characters revealed 11 themes grouped in 3 main categories (evidence in favour of paranoid appraisals, evidence against paranoid appraisals, other behaviour). Conclusions: People with current persecutory delusions are able to use a range of similar strategies to healthy volunteers when making judgements about potential threat in a neutral environment that does not elicit anxiety, but they are less likely than controls to engage in active hypothesis-testing and instead favour experiencing “affect” as evidence of persecutory intention.