As such, Psychosis is in essence an aspect of The Hatter but has been granted a unique position of power due to the machinations of Misery - who used the madness of Kane and the deceased Inferno Pendragon to create her "shell", which was then given "life" by a small amount of The Hatter's influence - which was lured into the "shell" when it sensed Kane's madness, reminding The Hatter of Arodnap, whom it had merged with briefly in the past.
During the events of Unspeakable Psychosis aided Misery in resurrecting Inferno as a mindless monster but soon grew out of favor as she proved uncontrollable and jeopardized Misery's true goal to break Sangria's spirit.
Thus Misery would break away from Psychosis and aid Kane in coming up with a plan to limit the entity's influence, gaining Kane's help via a mixture of bribery and intimidation.
As Kane formed a very uneasy alliance with several heroes to brave the Realm of Madness to obtain the Shackles of Shame Psychosis continued to use the mindless Inferno to cause havoc as well as driving many innocent people insane.
Ultimately Psychosis would be confronted by Misery, who distracted the demon long enough for Kane and the others to return and shackle her - after which Misery tossed her into the Realm of Madness, where she remains.
Following Psychosis' defeat it would fall to Sangria to put an end to her still mindless father, Misery refusing to take his life and hoping that Sangria would fail to have the strength to do so - although Sangria did ultimately do this Misery still gained a minor "victory" as the event haunted Sangria for many years.