A psychophysiological analysis of the development of psychological differentiation is presented and compared with the psychophysiological state of self-actualization. The psychological state associated with self-actualization is presented as the baseline for measuring all human behaviour. The analysis of psychological differentiation suggests that both ends of this continuum represent a deviation from the baseline of the self-actualized state. It is suggested that one of the possible consequences of this deviation is the pathological state of depression. Thirty-one depressed patients from three hospitals were examined using a battery of tests which produced a number of significant correlations. The most important of these was that a significant difference existed between field-dependent and field-independent patients on comparison with psychiatric diagnosis suggesting that field-independence is closely related to exogenous depression and field-dependence to endogenous depression. A critical review is made of contemporary theories of depression and a new model is presented. This model suggests the people develop habitual apperceptual modes of perceiving the world and fail to recognize a change of context. Reactive depression can be accounted for by a model of a subject who habitually perceives the world as an instrumental learning context and is placed in a passive avoidance context. A therapeutic strategy is suggested for treatment of the patient which consists of altering the informational component of behaviour encouraging the motivational component.