In the film, Freddy is depicted as closer to what Craven originally intended, being much more menacing and much less comical, with an updated attire and appearance.

The film features various people involved in the motion picture industry portraying themselves, including Langenkamp, who is compelled by events in the narrative to reprise her role as Nancy Thompson.

However, it received positive reviews from critics, and is considered by many as one of the best Nightmare movies and one of Wes Craven's most enduring films.

Heather Langenkamp lives in Los Angeles, California, with her husband, Chase, and their young son, Dylan.

After his funeral, Heather has another Freddy nightmare, and her friend and former co-star, John Saxon, who played her father in the films, suggests she seek medical attention for Dylan.

He explains that the films had kept trapped an ancient supernatural entity, which has been freed after the series ended with the release of Freddy's Dead: The Final Nightmare.

Heather catches a glimpse of Wes's script, which, inexplicably, is a written play-by-play of every dialogue and action she and everyone around her are taking.

Heather takes Dylan to the hospital and returns home for his stuffed dinosaur while his babysitter, Julie, keeps watch.

They emerge back into the real world from under his blankets, and Heather finds a copy of the events in Wes's screenplay.

Wes Craven set out to make a deliberately more cerebral film than recent entries to the franchise—which he regarded as being cartoonish, and not faithful to his original themes.

Reflecting on the filming in Never Sleep Again some sixteen years after the movie was released, Risher commented "all of the other directors had to be guided through but Wes by then was the master".

In the 2010 documentary Never Sleep Again, it is suggested that the film opening against Pulp Fiction may also have damaged its potential box office.

The website's critics consensus reads: "Wes Craven's New Nightmare adds an unexpectedly satisfying - not to mention intelligent - meta layer to a horror franchise that had long since lost its way.

Entertainment Weekly's Owen Gleiberman gave New Nightmare a negative review, stating: "After a good, gory opening, in which Freddy's glove—newly designed with sinews and muscles—slashes the throat of the special-effects guy who's been working on it, the movie succumbs to a kind of sterile inertia.

It's about Heather Langenkamp, star of the original Nightmare on Elm Street, being menaced for two long, slow hours by earthquakes, cracks in the wall, and other weary portents of doom."

Gleiberman described the film as "just an empty hall of mirrors" that "lacks the trancelike dread of the original" and the "ingeniously demented special effects" of Dream Warriors.