The dielectric function of liquid benzene at -4 degreesC, 21 degreesC, and 65 degreesC has been calculated from molecular dynamics simulations. The simulated dielectric loss curves reproduce the experimental temperature and density trends. In order to investigate the detailed influence of temperature and density changes as well as the underlying molecular mechanism we have taken advantage of different partitioning and projection schemes for the total dipole moment time correlation function (TCF). The study of the n-body partitioning showed that the temperature dependence of the two- and three-body contributions at t=0 can be explained solely by density change arguments. The molecular projection scheme showed that the dielectric loss is governed by out-of-plane libration at all temperatures. In-plane libration was found to contribute significantly only below 2 THz. Below 1 THz, diffusion, manifested as the negative cross correlation between the out-of-plane and the in-plane TCF's, plays a role very different from that of the directly observed diffusion in dipolar liquids. It has further been established that it is highly problematic to carry out an analysis of the dielectric loss function in terms of the molecular axis rotational TCF's which is a common procedure for the absorption spectrum. This problem was, however, solved by employing a molecular projection scheme. (C) 2001 American Institute of Physics.