The current study was designed to examine the role of nightmares in psychosis proneness in relation to lucid dreaming. In this correlational study, the sample comprised of 220 young Pakistani adults from both genders (124 women and 96 men) age range from 18 to 26 years (M = 21.14, SD = 1.87). The participants were assessed on nightmares, psychosis proneness, and lucid dreaming through the Mannheim Dream Questionnaire, Inventory of Personality Organization, and The Lucidity and Consciousness in Dreams Scale respectively. Pearson correlation analysis demonstrated significant inter-correlation between dream lucidity, nightmare, and psychosis proneness. Path analysis illustrated dream lucidity as a significant mediator in the link between nightmare and psychosis proneness. The results concluded that dream lucidity plays the role of facilitating factor in the development of psychosis proneness. The findings also provide insight into the role of nightmares and lucid dreaming while examining psychosis proneness.