Transpersonal theory proposes that there are developmental stages beyond the adult ego, which involve experiences of connectedness with phenomena considered outside the boundaries of the ego. In healthy individuals, these developmental stages can engender the highest human qualities, including altruism, creativity, and intuitive wisdom. For persons lacking healthy ego development, however, such experiences can lead to psychosis. Superficially, transpersonal states look similar to psychosis. However, transpersonal theory can assist clinicians in discriminating between these two conditions, thereby optimizing treatment. The authors discuss various therapeutic methods, including transpersonal psychopharmacology and the therapeutic use of altered states of consciousness.