To understand virtual realities and the effect on its users, empirical research into a variety of social and psychological domains has to be conducted in online virtual environments. It is argued that presence, the experience of being-in-the-virtual-world, plays a key role in most psychological processes connected with virtual worlds. A short overview of studies addressing personality, identity, emotions, and stereotypes in virtual reality is given, to subsequently offer improved approaches, by using a setup that compares participants on an individual level. Furthermore, potential cohort-differences are discussed; there is reason to believe that people who have grown up with computers, Internet, and virtual worlds experience and use virtual worlds differently than those who haven’t. Finally, it is hypothesized that virtual worlds influence real life in a reciprocal loop, by shaping cognitive, psychological, and social processes of the real world and – seemingly paradoxical – might even trigger experiencing the real as real.