This paper argues that real imagination depends on the capacity to acknowledge the absence of what is imagined from the world of material actuality. This leads on to a view of symbol formation as the operation of the transcendent function between the opposites of presence and absence. ‘The imaginary’ is contrasted with this as a defensive misuse of imagination that attempts to deny ‘negation’ where negation is defined as all those aspects of the world that constitute a check to the omnipotence of fantasy—e.g., absence, loss, difference, otherness etc. Parallels are drawn with theoretical antecedents in analytical psychology and psychoanalysis, with particular attention to papers published in the Journal of Analytical Psychology (JAP) in the 1960s on the relation between active imagination, transference and ego development. A clinical example is given to show the use of the imaginary as a means of warding off the unbearable pain of Oedipal disappointment.