Ability grouping in schools and classrooms constitutes something of a policy hiatus in the Australian context, in contrast to the conspicuous visibility of equity and quality as explicit policy goals. This article examines what I am calling the dialectics – i.e. moments of negation that allow for creation – and dilemmas inhering in the complex and contradictory relationship between policy priorities of quality and equity, and practices of ability grouping, in Australian schooling. I explore these dialectics and dilemmas between these dimensions both at a macro, social level of policy and at a micro, psychological level of the teacher as a policy worker, exploring the latter through a vignette of one pre-service teacher grappling with issues of ability grouping in schools and classrooms. The article concludes with an argument for the value of generating continual dialectical exchange between the conscious and the unconscious, between the imaginary and symbolic registers, between psychotherapeutic and educational discourses and between policy and practice, as an essential element in ongoing formation of ethically and politically agentive teacher identities that are capable of holding policy to account in a climate that often positions teachers as educational technicians and curricular transmitters.