Empathy is usually regarded as an irreducible inborn capacity, operative from birth, for knowing the inner experience of another person without necessarily perceiving cues from that person about his thoughts or feelings. Merging of the type characteristic of early infant-mother symbiosis has often been considered the origin and basic component of empathy. However, merging is an illusory experience which cannot function as an active mechanism in the perceptual process, and the psychological structures needed for certain kinds of empathy do not commence development until eighteen months of age. The mechanism of empathy has also been ascribed to vaguely defined variants of identification. This is not a settled issue, but the idea is not compatible with a recent rigorous effort to define identification. The author offers a different theory of empathy, according to which empathy is a capacity that evolves with neuropsychological maturation and interpersonal interactions in the course of individual development. Empathy depends on sensory perception of behavioral cues from the object about his inner state. The empathizer compares these behavioral cues with one or more kinds of referent in this own mind which could be expressed by similar behavior. He then infers that the inner experience of the object qualitatively matches that associated with his referent. Limitations in the accuracy and scope of empathy are threefold: patients may limit or distort the expression of behavioral cues about their state of mind; referents available in the mind of the empathizer may be inadequate; and the inferential process is inherently uncertain. As a result, knowledge of another person's thoughts and feelings which can be acquired through empathy is limited. The theoretical understanding of empathy offered in this paper implies ways for improving empathic accuracy, especially by means of applying two or more kinds of referents to the same set of perceived cues.