This chapter focuses on the hereditary and constitutional factors; the environmental contribution; and the role of fantasy. Besides object relations and affective life, the early environment also affects psychic differentiation of the growing child. It highlights their significance for the treatment of psychotic and potentially psychotic individuals. Acquisition of basic ego skills depend upon the burgeoning interplay of autonomous ego functions and parental instruction and modeling. Thought disturbances originate from the intense self-directed aggression which inwardly mutilates the fabric of thinking. The emphasis upon the constitutional vulnerabilities and the environmental failures should not give an impression that the child's own fantasy life plays no role in the assemblage of the psychotic core. Retrospective fantasies are also created by the perceptually bashful, energically weak, and affectively unstable ego. Focus of such fantasies is usually upon the extensive debris of the troubled preverbal period of life.