This author argues that therapeutic action in child psychoanalytic psychotherapy rests with the creation and transformation of fantasy through play, which in turn shifts psychic structure. The paper details the treatment of an eight-year-old girl whose mother's inability to playfully participate in the inner world of her child interfered with the child's development of a fantasy life. The author suggests that the introduction of objective reality (i.e., interpretations that link the child's play with the real world) potentially impinges on and interferes with the transformational processes of fantasy. Developing the capacity to distinguish reality from fantasy does not take place through a forced accommodation to reality, but rather through the expansion of fantasy and a widening of the realm of the imagination. The elaboration of fantasy in concert with a parent or analyst is what builds the child's capacity to differentiate reality from fantasy.