The third stage of psychosexual development proposed by Freud is the phallic stage, occurring between the ages of 3 and 6. During this period, children become aware of their bodies and the differences between males and females. The erogenous zone in this stage is the genitals, and conflicts arise as children develop desires toward the opposite-sex parent. Boys experience the Oedipus complex, where they desire their mother and view their father as a rival. This leads to castration anxiety, the fear that the father will punish the boy by mutilating him. To resolve this conflict, the boy identifies with his father, indirectly gaining his mother's attention. If unresolved, this conflict may lead to fixation, potentially resulting in traits like vanity and an excessively ambitious personality.

Girls, on the other hand, experience the Electra complex, desiring their father and wishing to replace their mother. Freud argued that girls also develop penis envy, feeling deprived of a penis and blaming their mother for this absence. Since girls do not experience castration anxiety, Freud believed they could not develop a superego as strongly as boys, which, according to him, made them morally inferior. He concluded that this inferiority explained why women held a secondary position in society during his time.

Freud suggested that girls sought to compensate for their lack of a penis by marrying and bearing sons. While his views conflicted with early feminist thinkers, Freud maintained his belief that men and women were not equal in every respect. He considered women somewhat childlike in their development, requiring the guidance of fathers and husbands, and believed that education offered the best hope for women's moral progress.