Background: Active management of the third stage of labour is routine in delivery suites. New South Wales (NSW) Health has a policy which prescribes active management because medically designed randomised controlled trials have claimed a reduced blood loss in third stage with active, compared with ‘physiological’, management. In home and birth centre settings however, physiological third stage is common as women who access these settings prefer to labour without medical intervention and midwives who work in these settings adopt a holistic approach to working with women. The holistic approach is psychophysiological as the midwife engages with and supports integration of the woman's spirit, mind and body in her childbearing process. Purpose: To present midwifery theory that describes, explains and predicts how women and midwives work together to enable selected women to safely experience an optimal psychophysiological third stage of labour. Method: Key terms are defined. The literature relevant to psychophysiology and management of the third stage of labour is reviewed. An expanded understanding of risk factors for postpartum haemorrhage is presented and justified. A theoretical framework of Midwifery Guardianship is presented and discussed and applied to third stage care. Conclusions: A psychophysiological third stage is quite different from what has been defined as ‘physiological management’ in the medically designed randomised trials comparing active versus physiological care. The conditions for deciding if a particular woman, in a particular context with a particular midwife is a good candidate for a psychophysiological third stage are presented and discussed. Only if all these conditions are met it is safe to proceed with a psychophysiological third stage. Research about the effectiveness of midwifery care in a psychophysiological third stage of labour urgently needs to be conducted.