Mindfulness- and compassion-oriented integrative psychotherapy (MCIP) differentiates between two main senses of self: the personal sense of self and the observing/transcendent self. The personal sense of self is the expression of the self-narrative that is continually self-reinforcing and maintaining itself. The authors propose that all human beings suffer from ordinary unhappiness, which is the result of identification with the personal sense of self. Because of identification with the personal sense of self, people feel fundamentally separate from each other, live unconsciously according to their life-story, are preoccupied with themselves, and experience loss of the present moment. The authors present the Self-Narrative-System, which is a diagnostic and treatment planning tool that helps us to understand the client in terms of their self-narrative. The self-narrative system consists of three interrelated components: internalised self-narrative, lived and embodied experience, and reinforcing experiences. The model shows how the person is living their internalised life-story and how they are continually reinforcing it. The authors propose that change of self-narrative paradoxically happens through accepting awareness and compassion. The activation of the observing self helps us to develop a mindful and compassionate relationship with our personal sense of self and overcome ordinary unhappiness.