Heather Langenkamp lives in Los Angeles, California with her husband Chase and their young son Dylan. Heather has become quite popular due to her role as Nancy Thompson from the Nightmare on Elm Street film series. One night, she has a nightmare in which she, Dylan, and Chase are attacked by a set of animated Krueger claws of an upcoming Nightmare film in which two of the workers are brutally murdered on set. Waking up to an earthquake, she spies a cut on Chase's finger exactly like one he had received in his dream, but they quickly dismiss the notion.
Heather receives a call from an obsessed fan who calls and quotes Freddy's nursery rhyme in an eerie Freddy-like voice. This coincides with a meeting she has with New Line Cinema in which she is pitched an idea to reprise her role as Nancy in a new Nightmare film, which Chase had been working on, unknown to her at the time. When she returns home, she sees Dylan watch her original film. When she interrupts him, he has a severely traumatizing episode where he screams at her. The frequent calls and Dylan's strange behavior cause her to call Chase, who agrees to rush home from his work site, as the two men from the opening dream did not report in for work. But Chase falls asleep while driving and is slashed by Freddy's claw, which results in his death. His death seems to affect Dylan even further, which causes concern for Heather's long-time friend and former costar John Saxon. He suggests she seek medical attention for both him and for her after Heather has a nightmare at Chase's funeral in which Freddy tries to take Dylan away.
Dylan's health continues to destabilize, becoming increasingly paranoid about going to sleep and fearing Freddy Krueger even though Heather had never shown him her films. She visits Wes Craven, who suggests that Freddy is an entity drawn to his films, released after the series completed and now focuses on Heather, as Nancy, as its primary foe. Robert Englund also has a strange knowledge of it, describing the new Freddy to Nancy, only shortly after disappearing from all contact. After another earthquake, Heather takes a traumatized Dylan to the hospital, where the head nurse, suspecting abuse, suggests Dylan stay for observation. Heather returns home for Dylan's stuffed dinosaur while his babysitter Julie tries to keep the nurses from sedating the sleep-deprived boy. Dylan falls asleep after the nurses sedate him, and Freddy brutally kills Julie in Dylan's dream. Capable of sleepwalking, Dylan leaves the hospital of his own accord while Heather chases him home across the interstate as Freddy taunts him and dangles him before traffic. Upon returning home, Heather realizes that John has established his persona as Don Thompson. Upon Heather's compliance in embracing Nancy's role, Freddy emerges completely into reality and takes Dylan to his world. Heather finds a trail of his sleeping pills and follows him to a dark underworld. Freddy fights off Heather and chases Dylan into an oven. Dylan escapes the oven, doubles back to Heather, and together they push Freddy into the oven and light it. This destroys the monster and his reality altogether.
Dylan and Heather emerge from under his blankets, and Heather finds a copy of the film's events as a screenplay at the foot of the bed; inside is a thanks from Wes for defeating Freddy and playing Nancy one last time. Dylan asks if it is a story, and Heather agrees that it is just a story before opening the script and reading from its pages to her son.
What does Dylan ask?
If it is a story