Recent proposals to discard the concept of infantile narcissism as incompatible with currently available observations of infants pose a dilemma for psychoanalytic psychology because that concept has been of major importance in concurrent clinical investigations of borderline disorders. A reformulation of Freud's theory of infantile narcissism is proposed, based on Piaget's model of child development. It proposes that objectively the child is actively engaged with its environment from the beginning. Subjectively, however, in its own understanding, the infant does not recognize the world as external. Major phenomena of infantile narcissism are entailed by this model. Clinical illustrations are used to show its implications for the observed phenomena of borderline disorder in adults and children.