This paper is an exploration of the way in which narcissistic fantasies contribute to the development of a capacity for reality testing by moderating anxiety aroused by development that could otherwise become traumatic. Images of the success and failure of this psychic process are to be found in Raphael’s painting “The School of Athens.” The facilitation of an improved capacity for realism by narcissistic fantasies is a paradoxical idea because, in and of themselves, narcissistic fantasies substitute for reality. The family romance fantasy is examined to explore whether or not the contradiction is only apparent even though the fantasy is in itself delusional. The basic purpose of the paper is to explore the contribution of narcissistic fantasies and narcissistic needs which are not themselves reality bound but which psychically facilitate the development of forms of experience and thought that are reality bound. These themes are explored in the history of ideas, in individual development, and in clinical psychoanalysis.