Counterfactual thought allows people to consider alternative worlds they know to be false. Communicating these thoughts through language poses a social-communicative challenge because listeners typically expect a speaker to produce true utterances, but counterfactuals per definition convey information that is false. Listeners must therefore incorporate overt linguistic cues (subjunctive mood, such as in If I loved you then) in a rapid way to infer the intended counterfactual meaning. The present EEG study focused on the comprehension of such counterfactual antecedents and investigated if pragmatic ability-the ability to apply knowledge of the social-communicative use of language in daily life-predicts the online generation of counterfactual worlds. This yielded two novel findings: (1) Words that are consistent with factual knowledge incur a semantic processing cost, as reflected in larger N400 amplitude, in counterfactual antecedents compared to hypothetical antecedents (If sweets were/are made of sugar). We take this to suggest that counterfactuality is quickly incorporated during language comprehension and reduces online expectations based on factual knowledge. (2) Individual scores on the Autism Quotient Communication subscale modulated this effect, suggesting that individuals who are better at understanding the communicative intentions of other people are more likely to reduce knowledge-based expectations in counterfactuals. These results are the first demonstration of the real-time pragmatic processes involved in creating possible worlds.