Mankind has been fascinated with dreaming since the dawn of history. This chapter reviews the basic methodology and findings of the psychologically oriented research and the collaboration of neurophysiological and psychological approaches necessary to investigate the fascinating topic of possible interaction between physiological processes and psychological experiences during rapid eye movement (REM) sleep. The main goal of dream content analysis is the quantification of specific aspects of the dream in order to perform statistical analyses. In the analysis of large samples of dream reports, different dream aspects like bizarreness, emotions, and perception have been characterized. This chapter focuses on the effect of waking-life experiences on subsequent dream content. Many researchers are advocating the so-called continuity hypothesis of dreaming which simply states that dreams reflect waking-life experiences. The chapter explains two motives that have stimulated investigating the relationship between dreaming and mental disorders.