The authors of this paper discuss changes in the child's perception of psychic reality during normal development, highlighting a major shift in the child's understanding of minds (‘theory of mind’) at the oedipal stage. They illustrate this transition with material from the analysis of a 4-year-old girl. They maintain that the very young child uses two forms of psychic reality, which they have called ‘psychic equivalent’ and ‘pretend’ modes, which differ primarily in the assumed relationship between internal and external realities. The integration of the dual modes into a singular reflective mode is normally completed by about the age of 4, with affect leading cognition: the child first understands that people have different feelings, then that they may have different thoughts about the same external reality. The authors describe normal psychological growth and neurotic pathology, in which the integration of these two modes of functioning has been only partly achieved.