Conflict scholars and practitioners have devoted much effort to understanding why differences sometimes escalate into full‐blown conflicts. But not enough attention has been paid to the psychological and physiological process of “reality formation and identity formation” inherent in the nature of individual human consciousness. The author shows how the functions of identity and reality formation pervade human activity, and how they are particularly connected to conflict. This theoretical construct has a variety of implications for mediators and dispute resolution in general, which the author illustrates with a series of brief case examples.