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The lateral dimension of psychic life, lived through relationships with siblings and their substitutes, is structured around a distinct psychic challenge: to find one's unique place in a world of similar others. Like the challenge that structures the vertical parent-child dimension, the lateral challenge is fraught with conflict and ambivalence; its resolution imbues psychic structure. That resolution may be accomplished through a process of differentiation, an active and unconscious process of identity development by which a child amplifies differences with siblings and minimizes similarities. Differentiation from siblings serves to mitigate interpersonal rivalry with them and to ease internal conflict associated with the lateral dimension. Three clinical examples are offered to illustrate the operation of sibling differentiation and its costs, particularly in terms of constricted identity and attenuated relationships with siblings and peers. Differentiation as a process of becoming what the other is not has been eclipsed by identification in psychoanalytic theories of identity development. Yet differentiation is a common strategy for resolving the primary rivalries and conflicts of the lateral dimension, and has unique developmental and clinical implications.