While your face is covered by headgear, you will be treated as a normal member of your race, with tag-based interactions about being undead. With your headgear off, many normal NPCs will flee, become hostile, and will actively avoid speaking to you.
There is a headgear item you receive early on that allows you to mimic other races, and semi-permanent variants can be crafted.
Combat AI on the other hand will almost always recognize your Undead talent (any creature with LM2 will instantly share this will all enemies) and you will be healbombed constantly throughout the game.