Objective: According to psychoanalytic theory, interpretation of transference leads to increased insight that again leads to improved interpersonal functioning over time. In this study, we performed a full mediational analysis to test whether insight gained during treatment mediates the long-term effects of transference interpretation in dynamic psychotherapy. Method: This study is a randomized clinical trial with a dismantling design. One hundred outpatients seeking psychotherapy for depression, anxiety, personality disorders, and interpersonal problems were randomly assigned to 1 year of weekly sessions of dynamic psychotherapy with transference interpretation or to the same type and duration of treatment with the same therapists but without the use of transference interpretation. Interpersonal functioning and insight were measured pretreatment, posttreatment, and 1 year and 3 years after treatment termination. Results: Contrary to common expectation, patients with a life-long pattern of low quality of object relations and personality disorder pathology profited more from therapy with transference interpretation than from therapy with no transference interpretation. This long-term effect was mediated by an increase in the level of insight during treatment. Conclusions: Insight seems to be a key mechanism of change in dynamic psychotherapy. Our results bridge the gap between clinical theory and empirical research. (Contains 3 tables and 4 figures.)