This chapter discusses Stein’s understanding of mental health and mental illness in order to contribute to phenomenologically determine the formal object of psychiatry. It first outlines and defends Stein’s understanding of the psyche as an element of psycho-physical beings constituted from experiences marked by life power. Then it highlights three functions of the psychic mechanism that support mental health and which are affected in mental illness: vitality, rationality and trust. Finally the various ways in which psychic contagion can instigate and aggravate mental illness are discussed. It is argued that psychic causality is causing both the disturbances studied by psychiatry and the state of equilibrium its range of healing practices pursue and that thus the dysfunctional psyche, i.e. the psyche that does not support meaningful experiencing, is the formal object of psychiatry.