This seems to be an issue faced by many Christians who are gifted in discernment or prophecy, and who have a heightened awareness of spiritual atmospheres.
And not surprisingly—for growing in faith and spiritual authority is a significant part of our journey. If we are gifted in prophetic dreams or discernment, there may be contention for the gift of God on our lives.
For many years, I experienced demonic attacks in dreams, and am grateful for the freedom God has given to me.
Following are some thoughts on how you can respond when you have had a bad dream, demonic encounter or nightmare in your sleep:
1. Know what the Bible says About Sleep
Our standpoint is that we don’t put up with anything less than God’s best for our loved ones and ourselves. With insight, the leading of the Holy Spirit and applying our spiritual authority, a troubled dream can be redeemed and turned to good.
The starting place is to establish a firm foundation of knowing what the Bible says about God’s purpose for our sleep and night hours.
2. Ascertain the Source of the Dream (and Deal with it Accordingly)
There are 4 basic types, or sources of troubled or negative dreams. These are:
A. Ordinary processing dreams
Troubled dreams may arise from encountering something in your day. Be aware that what you view (such as Internet and TV) can affect your sleep. By guarding our viewing, we are protecting our inheritance and the gifts God wants to give us during our sleep.
‘I will conduct the affairs of my house with a blameless heart. I will not look with approval on anything that is vile.’ (Ps 101:2b-3)
B. Soul dreams
Dreams can also reveal our emotional response to something in our lives.
Emotions experienced in a dream may relate to something from the past or present, or concerns about our future. For example, underlying anxiety, fear or jealousy concerning a person or situation can emerge in a dream.
The benefit of these types of dreams is that we can become aware of a subconscious response we are having. Responding to these dreams well means allowing the Holy Spirit to minister to us in that area.
C. Prophetic Warning Dreams
Warning dreams in Scripture were a means of God protecting His people and through those warnings, the Holy Spirit provided them with clear instructions.
A dream from the Holy Spirit that is a prophetic warning should not result in ongoing fear. It should result in a clear course of action—which may be to pray or intercede. Once that action is taken, any sense of burden that has come with the dream should lift.
Look for the fruit. Do not label something to be from the Holy Spirit if the fruit is confusion, fear, or something else that is negative. I have known people who have had fearful dreams about things happening to friends and loved ones thinking it is a prophetic warning dream—but it was actually arising out of their own subconscious fears or deep feelings. 
D. Spiritual Warfare Dreams
Spiritual warfare dreams can range from a generally dark dreams through to direct demonic confrontation or nightmares.
Not knowing the reason for spiritual warfare or demonic presence in a dream is not necessary to exercising your spiritual authority over it in Jesus’ Name. Simply, you do not need to put up with it.
However the Holy Spirit may lead you to ask, ‘what is the reason for this?’
- Is it personal spiritual warfare coming against God’s purposes for you, your ministry or your family?
- Is it situational—due to a demonic presence occupying a room or region?
- Are there any permissions that need to be cancelled—if it has been allowed to operate or occupy?
If the Holy Spirit shows you that spiritual warfare is occurring because you have allowed the enemy access in your life, (Eph 4:27) regaining authority requires repentance and submitting to God.
‘Submit yourselves, then, to God. Resist the devil, and he will flee from you.’ (James 4:7)
Taking time to submit to God may include recognizing and repenting of any ways that you have opened the door to demonic attack—or simply poor choices made about what you have viewed or read.
Use your authority in prayer. In spiritual warfare terms, ‘binding’ means stopping, disallowing and commanding the enemy to cease its activity, in Jesus’ Name. ‘Loosing’ has to do with what you are permitting and releasing in Jesus’ Name. (Matt 16:19, Matt 12:29)
3. Always Pray about the Dream
Our first response to a bad dream, regardless of its source, should be to pray—and how you pray will depend upon the source of the dream.
This process should not be complicated, long or drawn out. We can have simple and bold faith. Our Father is good, His purpose is good, and our authority in Jesus’ Name is sure. We can be confident that prayer and referring to what the Bible says should lead us back to a place of peace and rest.
Bad Dreams and Children
Our response to children’s dreams needs to be handled sensitively. This means taking a caring, reassuring, positive, and faith-filled approach.
Each individual circumstance requires wisdom. Remember that you can pray for a child (e.g. in the next room) without necessarily praying with the child. There are also times to encourage them to pray and exercise their own faith and spiritual authority.
Very simply, they need to know that God is their loving Heavenly Father, that His purpose for their sleep and dreams is good, and that they have authority in the Name of Jesus over anything demonic. As parents, we need to be sensitive to the age and stage of the child and deal with it accordingly.
A Pattern of Negative Dreams or Ongoing Spiritual Warfare
What if there is a pattern of bad dreams or spiritual warfare, or you are using the above strategies but still not experiencing a breakthrough?
Depending on the issue, some Christian counseling or prayer ministry may be helpful. 
As always, we recommend sharing these kinds of issues with your spiritual oversight. Leadership in the church is given to us for protection, and to help with prayer, wisdom, comfort and discernment.
 For more about prophetic warnings, see here: Prophetic Warnings: What Should We Do With Them?
 For information and guidelines relating to safe prayer ministry, see my article here: Prayer Ministry Ideas and Guidelines
© 2015 Helen Calder Enliven Blog – Prophetic Teaching
On team with David McCracken Ministries: Prophetic Ministry That Empowers The Church