Fantasy is defined as a 'product of thought activity, representing an integration of the demands of all components of the psyche and reality, and serving specific psychic functions'. Conrad discusses the differentiation between reality and fantasy, the nature of unconscious fantasy, the influence of fantasy on symptom and character formation, and the origin of fantasies. This paper is also devoted to a consideration of the functions of fantasy including wish-fulfilment, assimilation of disagreeable experiences, decrease of environmental anxiety, reality adaptation, defense, and escape from the superego.