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Recent events have underlined in the most tragic and dramatic way the need for depth psychology to turn its attention to the psychology of terror. The present paper attempts to distinguish between the psychological modes of horror and terror and explores the different theoretical approaches of Burke, Freud, Kristeva and Jung to this problem in order to cast light on the individual and collective functions that horror and terror play. While all these authors stress that terror and horror play a role in structuring the sense of identity and in strengthening community bonds, Freud and Kristeva believe that the experience of horror works to increase the exclusion of otherness through mechanisms of repression or foreclosure while Burke and Jung see in the encounter with the Negative Sublime or with the Shadow the possibility of widening the boundaries of ego consciousness and of integration of ‘otherness’. The paper then uses the analysis of two horror movies and of a particular socio-cultural context to illustrate these different functions of horror and terror and to delineate possible solutions to the problems facing society.