Taking place almost a year after The Dream Master, Alice and Dan have now started dating and there is no sign of Freddy Krueger. One day, while in the shower, she sees herself at a strange asylum. As she walks she finds that she is dressed in a nun's habit with a nametag saying Amanda Krueger. She is then attacked by patients at the hospital but wakes up before anything happens. The next day Alice is graduating from high school alongside her new friends consisting of Greta, an aspiring supermodel, Mark, a comic book geek, and Yvonne, a candy striper who is also a swimmer. She only confides her nightmare to Dan, after he tells her about a trip to Europe. He tells her she is all in control of her dreams, and she goes to work.