Chapter 13 of the Biographia Literaria begins with a discussion of transcendental philosophy in which Coleridge says that the aim of the transcendentalist is to see the self within infinity. He regards transcendentalism as the result of two infinite forces that counteract each other "by their essential nature." However, this description is fraught with mysticism and does not contain a justification of why these forces should produce anything at all, let alone anything transcendent.

The main point of the chapter, however, is to simplify Coleridge's definition of imagination and to distinguish it from fancy. Coleridge reproduces a long letter from a friend, criticizing him for the length and complexity of his arguments on the subject of imagination. He then divides imagination into two categories. The primary imagination is "the living power and prime agent of all human perception." The secondary imagination is an echo of this, operating in the same way, but to a lesser degree. Finally, fancy is entirely different from imagination, and consists of "a mode of memory emancipated from the order of time and space."

Coleridge's explanations are often difficult to follow, and this is particularly true in the Biographia Literaria, where he often scatters his remarks on a subject over several chapters. The distinction between fancy and imagination appears in several places, including chapter 4 and chapter 12. However, the final brief paragraphs of chapter 13 come closer than anything else to being Coleridge's definitive pronouncement on the issue.