The author examines very carefully the anatomical, experimental and clinical evidence on the functions of the temporal lobe. Within it lie structures which have the function of matching percepts with preconscious memories and thus through them with unconscious repressed memories and fantasies. The result of this is the psychic assessment of the value of current percepts in terms of prospective somatic pleasure or pain, which is expressed as an affect. If the affect is a positive one the derivative fantasy is recreated. Such fantasies with their affects are conveyed to the frontal lobe by way of the efferent tracts of the temporal lobe, especially the fornix. This gives the frontal lobe the information it requires to regulate the procession of unconscious fantasies as described in Part 1 (Psa. Quarterly, 1954, No. 3) and thus to enable the individual to pursue his goals in a flexible way with minimum of waste emotion.