This study was undertaken to determine the effect of 24-h transdermal nicotine patches on sleep and dream mentation in 15 smokers aged 20 to 33. Utilising a repeated measures design, it was found that more time awake and more ASDA micro-arousals occurred while wearing the nicotine patch compared to placebo. Also, the percentage of REM sleep decreased, but REM latency and the proportion of time spent in NREM sleep stages did not change significantly. Dream reports containing visual imagery, visual imagery ratings and the number of visualizable nouns were significantly greater from REM compared to Stage 2 awakenings, regardless of patch condition. However, a general interaction effect was observed. Stage 2 dream variables remained equivalent across nicotine and placebo conditions. Within REM sleep, more dream reports containing visual imagery occurred while wearing the nicotine patch, and these were rated as more vivid. The greater frequency of visual imagery reports and higher imagery ratings specifically from REM sleep suggests that previously reported dreaming side effects from 24-h nicotine patches may be specific to REM sleep. Combined with previous animal studies showing that transdermally delivered nicotine blocks PGO activity in REM sleep, the current results do no appear consistent with PGO-based hypotheses of dreaming, such as the Activation-Synthesis (AS) or Activation, Input and Modulation (AIM) models.