Recently, I proposed a new theory of illusion and hallucination. The success of a theory should be judged by its ability to predict and explain phenomena. In the past, I’ve argued that the theory can explain accounts of olfaction, failures of binding, indirect perception, the nature of virtual reality, and other cases. Today, I argue  that the new theory gives a good account of dreams that contain perceptual elements which researchers have already identified. And I will argue that my theory predicts the existence of other kinds of dreams that contain perceptual elements.