Serving as a sequel to A Nightmare on Elm Street 3: Dream Warriors (1987), the film follows Freddy Krueger (Robert Englund) who, following the death of Nancy Thompson and completing his revenge against the families who killed him, reappears in the dreams of Kristen Parker, Joey Crusel, and Roland Kincaid, where he uses Kristen's best friend, Alice Johnson, to gain access to new victims in order to satiate his murderous needs.

In 1988, a year after the events of the previous film, Kristen, Kincaid, and Joey have been released from Westin Hills and returned to their normal lives.

The next day, Kristen meets with her boyfriend, martial arts enthusiast Rick Johnson, and their friends—Rick's shy and quiet sister Alice, Sheila, an asthmatic genius, and Debbie, an athletic girl who dislikes bugs.

Though Kincaid puts up a good fight, and unable to contact Kristen to pull him out of the nightmare, Freddy kills him.

Kristen is heartbroken to learn that Kincaid and Joey are dead, feeling guilty that she could not save them realizing Freddy is back to finish the three of them off.

As the last of the Elm Street children, Freddy taunts her into summoning one of her friends into the dream so that his torment can begin anew.

When Alice and Rick arrive at Kristen's house, they find her bedroom on fire and discover that she has burned to death.

Rick begins to believe Alice and has a dream in which an invisible Freddy kills him in a martial arts dojo.

In a dream, Alice rescues Dan, but he gets injured, prompting his surgeons to wake him up when he starts bleeding out in real life.

When Freddy seems to be winning, she recalls a nursery rhyme called "The Dream Master," which instructs one to show evil its reflection.

A Nightmare on Elm Street franchise originator Wes Craven presented his own pitch for the fourth Elm Street film, but producers Sara Risher and Robert Shaye turned it down, instead going with the "Dream Master" pitch as a progression of the "Dream Warriors" concept from the previous film.

[14][15] In an interview with Midnight's Edge, director Tom McLoughlin said that after completing Jason Lives: Friday the 13th Part VI (1986), New Line offered him the job on The Dream Master.

Rachel Talalay claims that she and the other producers felt that since the audience was so familiar with Freddy Kruger at this stage, it would be harder to replicate the scare factor of the first two films; instead they decided to continue in the same vein of A Nightmare on Elm Street 3: Dream Warriors (1987) rather than focus on pure horror.

[18]Rick Johnson, played by Andras Jones, was originally slated to die in a Freddy-induced elevator accident in the dreamworld.

[19] On the auditioning for Alice, Lisa Wilcox recalls that "I did a screen test with Tuesday Knight, who'd already been cast as Kristen Parker.

[23] In the documentary Never Sleep Again: The Elm Street Legacy (2010), Harlin describes that he and the producers were looking for "somebody [he] could make seem timid and vulnerable in the beginning and who can then in a believable way become kind of like Sigourney Weaver in Aliens or something like that", and that "[he] found lot of sort of hardcore tough chicks but [he] could never believe they could be weak and vulnerable – then [he] found a lot of mousy girls that when they try to be tough and strong capable, they fell on their face.

The reason for this first rejection, as she was told initially by the casting manager, was that she looked too much like "a cheerleader", and was deemed too pretty to play the part of the introverted, mousy girl Alice started off as.

[23]Ellie Cornell has claimed that she was in line for auditioning for a lead role in the A Nightmare on Elm Street franchise in 1988.

[24] The creative process was bogged down by the 1988 Writers Guild of America strike, forcing Harlin and the producers to improvise much during the filming.

Wilcox and Jones wrote their own dialogue for Alice and Rick after the death of Kristen while watching their old home videos, such as "I saw it happen in my dream".

This set was conceptualized by production designer Mick Strawn, who worked as art director and handled effects on the previous film.

One is the music score, composed by Craig Safan, while the other was a soundtrack album with mostly rock or pop-oriented songs by various artists.

The master record of this song, previously thought for many years to have been lost or destroyed, has since been "uncovered in a box deep within the bowels of Warner Brothers" according to Knight.

Since the Nightmare on Elm Street series was popular, many of the songs on the soundtrack had music videos: The film was released on August 19, 1988, on 1,765 theaters in North America.

The site's critical consensus reads, "A Nightmare on Elm Street 4: The Dream Master marks a relative high point in this franchise's bumpy creative journey, although the original remains far superior.

Upon its release, critic Kevin Thomas of the Los Angeles Times praised the story line, performances, and special effects, stating that the film: "is by far the best of the series, a superior horror picture that balances wit and gore with imagination and intelligence.

[38] While criticizing the plot for being derivative of the previous films, critic John H. Richardson of Los Angeles Daily News described the film's special effects as "downright brilliant, matching and even improving on the amazing effects in A Nightmare on Elm Street 3: Dream Warriors.