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From a psychoanalytic perspective, the symbol refers to all indirect and figurative representations of unconscious desire (symptoms, dreams, slips of the tongue, parapraxes, etc.). This conception of the unconscious symbol depends on a relation of general substitution where one thing takes the place of another; but unlike the term's conventional meaning, defined by the conjunction between the symbol and what is symbolized, the unconscious symbol is defined by a disjunction between symbol and symbolized.

Freud clarified this conception of the symbol following the "Project for a Scientific Psychology" (1950c [1895]), describing it as a mnemic symbol subsequent to his research into hysterical symptoms. In the case of a "standard" symbol, the connection between the symbol and what is symbolized remains, as in the example that Freud gives of the knight who fights for his lady's glove but who knows full well that the glove owes its importance to her. In this synecdoche of part for whole the conjunction of meaning is clear. With hysteria however, it is the loss of the connection between the symbol and what is symbolized that is noteworthy: "The hysteric, who weeps at A, is quite unaware that he is doing so on account of the association A-B, and B itself plays no part at all in his psychical life. The symbol has in this case taken the place of the thing entirely" (1950c, p. 349).

As a result of this disjunction of meaning, the affect that was bound to what is symbolized attaches itself to the symbol. In both instances the substitution assumes a similarity between the symbol and what is symbolized (A/B), and thus emerges the tension at the very heart of symbolic substitution between a nonsensical literal interpretation and a symbolic interpretation that supports a surplus of meaning because of the very denial or negation [[[négation]]] precluding the pure and simple assimilation of the two terms in question. In the case of the hysterical symbol, it is the impossibility of invoking denial that would explain the symptom's apparent absurdity.

What might appear here as a simple relation of substitution between two terms —the symbol and what is symbolized—allows, in fact, for an interpretation where meaning might attributed according to context. The symbol's abundance derives from its polysemy, but only reference to a regulated system of interpretation can lend precision to the symbol, hence the requirement to define the system and determine what it is that permits this regulation.

Freud hesitated between two rules of interpretation. Either it depends on individual context—specifically, a person's individual associations, which permit them to discover hidden meaning, as in the hysterical symptom or in dreams—or on collective context—specifically, a work of transindividual culture that clarifies meaning, as in "symbolic dream-interpreting" (1900a, p. 97). On the subject of the dream, he depicted sexual symbols that did not arouse associations for the dreamer but that the analysis would supply by referring to the symbolism of collective compositions (myths, tales, proverbs, songs, etc.); this enabled him to rediscover the correlation between the manifest and latent symbol. This obscure and concealed comparability appeared to be based on a relationship of equivalence (a tree for the male sex organs, a cave for the female sex organs), but also occasionally on a relationship of proximity (nudity symbolized by clothes and uniforms).

If symbols are multiple, the field of what is symbolized is highly limited, relating ultimately to the domain of sexual instinct. The theory of a predetermined and stereotyped sexual symbolic, in the service of an oneiric representability, corresponds with Freud's wish to contest Jung's theory of symbolism, whose conception of the "libido-symbol" ends up denying the importance of the sexual instinct in psychic behavior. Ernest Jones's key paper, "The Theory of Symbolism" (1916), seeks moreover to reinforce the Freudian theory of "symbolic dream-interpretation"; for Jones all true symbolism is the substitute for repressed drives/instincts: "Only that which is repressed is symbolized and only that which is repressed requires symbolization."

It is a question then of finding a rule of interpretation that can substantiate the discovery of the unconscious. To back up his theory Freud adopted the linguist Hans Sperber's theory of a primitive language [[[langue]]] parallel to the primitive language system [[[langage]]] of sexuality in which all symbolic connections would appear as traces and relics: "That which today is linked symbolically was in all probability formerly linked conceptually and linguistically." Freud is thus compelled to set out from a real anteriority, in a proximate association, or identity even, that belongs, through a similar association, to language and to a process of symbolization that is inseparable from the work of instinct.

Thus, the theory of the symbolic designates more of a structural demand than a clinical truth. In clinical terms, Freud always mistrusted instant symbolic interpretations and preferred to rely on individual associations that allowed him to uncover a linguistic usage that would justify the use of a symbolic representation.

Freud's theory of the symbol cannot therefore be separated from a conception of symbolization, which bears out the fact that the psychoanalytic approach is more a tripartite theory of interpretation, where it is necessary to consider the subject who symbolizes, than a theory of translation seeking to proceed via the simple substitution of one term for another. Freud's uncertainty demonstrates the difficulty of constructing a theory of the symbol while making allowances for the symbol both as a motivated sign (the symbol for Ferdinand de Saussure, corresponding to a natural analogy between symbol and symbolized) and as an arbitrary sign (the symbol for Charles Sanders Pierce, corresponding to the standard rule governing the signifier and signified, in other words to the arbitrary linguistic sign).

What is problematic with this theory of the symbolic is the conception of symbolization as a failure of sublimation rather than as its accomplishment. This opposition marks a return in too radical a fashion to the opposition between a symbolism of the unconscious and a symbolism of language. Post-Freudian theorists have sought to reconcile these different aspects of the symbol, whether through a semantic perspective associated with the image, as in the case of Melanie Klein and post-Kleinian theorists, or through a syntactic approach associated with language, as in the case of Jacques Lacan. It is a question in both cases of reviving the Freudian intuition of the symbol as the result of a process of symbolization. To Klein's interpretation of the imaginary, which retains a certain psychological realism, Lacan opposed reference to the symbolic order that represents an intellectualization of the unconscious.

The approach to symbolization as a process presupposes the preservation of that which Freud, rather awkwardly, wished always to have prevail: namely, the necessity for a dualism, for the articulation of a viable distinction between the symbolism of the image and the symbolism of language. The truth of Freudian empiricism in the theory of primitive language, like the original proximity of the symbol, is no doubt to mark the importance of this fundamental proximity of the psyche with the body as the juncture between representation and affect, between meaning and primitive animism, characteristic of the hallucinatory satisfaction of desire.

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