In a movie filled with time-traveling criminals, apocalyptic fanboys, reality-bending philosophies, and Jeffery Goines, Dr. Kathryn Railly stands out as being blessedly normal.
An intelligent and even-keeled psychiatrist, Railly plays the role of audience surrogate, the character who thinks what the audience would think and asks the questions we would ask. In doing so, she informs the audience even as she informs herself, helping us to keep track of all the story's oddballery.
She first meets James Cole after being asked by Philadelphia police to diagnose his sanity. He tells her he is from the future and he's been sent to gather "information." That's basically all the red flags she needs, so she has him institutionalized at the mental hospital under her care. There, she learns that Cole's mission is to gather information on the Army of the 12 Monkeys to help the future Scientists trace the path of the virus and develop a vaccine.
Based on her time with Cole, Railly develops a theory about people with Cole's condition. Calling it the "Cassandra Complex," she considers people with it to be burdened by reality who replace it with their own "self-inflicted agony" (a definition that closely mirrors L.J. Washington's concept of "mental divergence").
It's worth noting that she uses terms like "agony," "condemned," and "disbelieved" when describing the Cassandra Complex. Clearly, Dr. Railly has more empathy than the other psychiatrists in the film when it comes to her patients. While they appear bored during their interview with Cole, she's genuinely interested and even lets him have the phone call he was denied by others, an act as much out of sympathy as to prove a point.
After being kidnapped by Cole, Railly's role of audience surrogate kicks into full gear. Trying to break through Cole's psyche, she asks him pointed questions designed to elaborate on his time-traveling fantasy. In doing so, she forces him to give the audience exposition to move the story along.
She also counters all of Cole's statements with arguments of her own. For example:
RAILLY: Nobody is going to die. You're not going to save the world, okay? You're delusional. You've made all this up out of bits and pieces in your head.
RAILLY: Yes. Let me give you an example. You know Jeffery Goines. You were both patients at County Hospital.
COLE: Jeffrey Goines was a fruitcake.
RAILLY: And he told you then his father was a famous scientist who worked with viruses. So you've incorporated that bit of information to this cockeyed fantasy.
Railly's arguments are exactly those any sane person would make if put in such a situation. They're the arguments we would make if we weren't watching a fantasy film and left our disbelief at the door. By including them, the film not only gets important exposition out of the way but also adds an air of believability to the proceedings.
Her travels with Cole further demonstrate her ability to care for those with illness, mentally and physically, as well. At one point, Cole leaps from the car to show her graffiti from the Army of the 12 Monkeys. She has the chance to book it but chooses instead to stay and see if she can help Cole with his fantastical worldview.
In a later scene, she removes a bullet from Cole's leg and bandages the wound. We didn't know psychiatrists and medics had such an overlapping skill set…but, lucky for Cole, they do.
In the final third of the film, Railly switches roles and begins to buy into Cole's understanding of the world. In her defense, there's some pretty decent evidence for this change. The bullet she dug out of Cole's leg was about a hundred years old, she sees a picture that seems to feature Cole in the World War I trenches, and Cole was able to accurately predict that Ricky Neuman wasn't stuck in the well but hiding in a barn.
Oh, and the whole James-Cole-vanishing-into-thin-air-twice thing.
Disbelieving her newfound beliefs, she calls Dr. Fletcher:
RAILLY: Psychiatry—it's the latest religion. We decide what's right and wrong. We decide who's crazy or not. I'm in trouble here. I'm losing my faith.
If we extend psychiatry to mean a faith in science and reason over the emotional and subjective, then Railly completely loses her faith when she reunites with Cole.
Lieutenant Halperin wonders if she hasn't succumbed to Stockholm Syndrome, a condition where a captive aligns with his or her captor's mindset.
And there's some evidence to back up this reading. For example, Railly dyes her hair blonde when they go incognito, but this wasn't an original choice by her. Cole had already mentioned that he remembered her as a blonde. Is it possible she altered her hair color to match Cole's memory and please him? Did her empathy backfire, leaving her open to absorbing Cole's delusion?
Whatever the case, Railly and Cole decide they can't alter the course of history and choose to runaway to Key West to live out their days on the beach. Not a bad plan—however, their plan leads them directly to Cole's predetermined fate.
At the airport, Railly bumps into Dr. Peters. Seeing a newspaper picture that reveals Peters as Dr. Goines' assistant, she realizes that he's the one who actually releases the virus. She informs Cole, and the two make a desperate dash to prevent Dr. Peters from boarding the airplane. In their attempt, Cole is shot to death by the police. Railly comforts him as he dies, and the police come to take her away.
As she is being taken away, she sees a young boy watching the events. Realizing this is a young James Cole, she smiles sadly at him. Her fate is unknown, though she likely dies when the virus is released.
All we know for certain is that she can't escape her fate…whatever that may be.