The author develops a three-stage theory of mental processes. In his view the first psychic imprints take the form of sensory-motor schemata (Piaget), perception-affect-action patterns (Lichtenberg) and generalized representations of interaction (Stern). At the age of one-and-a-half, mental activity begins to exist in the form of the ability to freely evoke images. In this way the child is able to transcend reality and to think in terms of things which are absent or have never really existed. At this stage active imagination sets in, combining the real and the possible. The closing stage of this development is the linguistic encoding of the mental. The author suggests reserving the term "fantasy" for the second and third stages and discusses the implications of this proposal for the concept of unconscious fantasy.