Set ostensibly in the Ottoman Empire, but in a deliberately imprecise past shaded by myth and intended to represent the modern totalitarian state,[1][2] The Palace of Dreams follows the rapid rise of Mark-Alem, a young Ottoman Albanian related to the powerful Köprülü family, within the bureaucratic regime of the title palace, a shady ministry whose objective is to gather, examine and interpret the dreams of the empire's subjects in order to uncover the master-dreams, which are believed to show the future destiny of the Sultan and the state.

[1] Kadare camouflaged an excerpt of The Palace of Dreams as a short story and published it, alongside Broken April, The Ghost Rider, and The Wedding, in his 1980 collection of four novellas, Gjakftohtësia (Cold-bloodedness).

At the idea of his uncle, the Vizier, who holds the position of Foreign Minister, Mark-Alem is offered a job at the mysterious and feared Tabir Sarai, a government office responsible for the study of dreams.

Even though inexperienced, on the back of a "recommendation that hangs between menace and patronage ('You suit us ...')",[2] he is hired in the "Selection" section of the Palace, where his obligations include making a longlist of interesting dreams and draft-interpretations of the more striking ones.

As he rapidly climbs – to his own amazement – the hierarchical ladder within the Tabir Sarai in record time, Mark-Alem gradually realizes that the labyrinthine Palace holds many secrets and exerts much more influence than publicly acknowledged, ranging from holding subversive dreamers responsible for the products of their unconsciousness to torturing them and being responsible for the demise of whole families based on dream symbolism – something which, essentially, gives the one who controls the Palace an almost unlimited power.

[9] A review for Los Angeles Times describes the book as "flawless ... allegory of power", noting that in "its terse geometry, Kadare has introduced a historical and intensely human sadness.