In his discussion of the case of Schreber, Freud hypothesised a relationship of paranoia and schizophrenia to latent homosexual conflicts. Many ways of understanding this hypothesis make limited sense. This paper attempts a reinterpretation of Freud's hypothesis and the concept of homosexuality in relation to psychosis. The claim is that Freud's concept of alleged homosexuality can be viewed as a necessary homoerotic position in the development of identity. In this paper, I shall discuss a possible understanding of the developmental structures from autoerotism to heterosexuality, and relate these to basic structural phenomena as inner-outer, self-other and self-group. Schizophrenic psychosis may be discussed in the light of these phenomena, not the least the patient's difficulty, sometime lifelong difficulty, identifying one's self as part of a group of like-minded and like-bodied.