Aim: The paper aims at defining the role of abductive reasoning in the reader’s interpretation of English fiction narrative text. Three research questions are defined as follows: (1) what is the nature of sign interpretation in its application to textual analysis? (2) what linguistic factors determine the use of abduction in the interpretation of signs? (3) how to apply abductive reasoning in the process of reading and interpretation in EFL teaching practice? Abduction is viewed here as a type of reasoning in the three-componential semiotic model of argument and as a deductive hypothesis, responsible for implicit meaning processing (Charles Peirce). Materials and Methods: The paper states the four-stage process of abduction to be a basic inquiry method of the reader on his way to fiction world interpretation. By providing a step-by-step analysis of patterns of abductive reasoning in a short story “Happy Endings” by Margaret Atwood, the paper conducts a textual analysis of narratives in terms of subjectivity theory of communication, reflecting the mechanisms of reader’s manipulation with information as a dynamic semiotic process of interpretation, limited by habit (final interpretant). Results: of the research of the mental operations employed by the reader while processing textual information proved a strong interrelation of reading with writing, and mental sub-processes and operations. As the empirical research shows, the process of conceptualization demands a higher level of cognitive maturity on the part of the reader/writer, as it presupposes “knowledge transforming” operations as opposed to “knowledge telling” strategy (Paltridge et. al. 2009: 20). To represent this process schematically, scholars assign the reader/interpretant the central role in the process of triadic sign interpretation, as he makes the further interpretation possible by a reference to the environment (Scheibmayer 2004: 305). The interpretant (I) and Representamen (R1) refer to the same object (O); as Representamen (R2) stands in the same relation to object, represented by Representamen (R1) and to the system (O2), where it acquires the functions of the observer (Sonnenhauser, 2008: 331). Conclusions: The conclusions coming from this research lead to the recognition of the second-level (or third level) observer as a source of subjectivity. And subjectivity, in its turn, arises from the difference in interpretation of signs recognized and established by the observer (Maturana & Varela, 1980). Thus, the process of differentiation by the observer is expected to fix the possible existence of other meanings, produced by the relations of the interpretant to the environment. This is the notion of thirdness. And, therefore, “sign situation”, plays the role of marking the pairs of differentiation in semiotic interpretation of signs. And it is this differential potential of indexical components of signs, and not their relatedness of meaning, which makes communication dynamic.