Dogs definitely dream.
Studies have proven canines experience the rapid eye movement (REM) stage of sleep, which is when humans have their most intense, realistic dreams. In dogs, they usually reach the REM stage within 20 minutes of falling asleep, and stay there two to three minutes.
Back in 2001, researchers from the Massachusetts Institute of Technology found rats, like humans, replay scenarios from their waking hours over again during REM sleep– they did this by monitoring their brain waves while awake, and asleep. This means their dreams were the direct result of their daytime activity.
In another experiment, researchers deactivated the mechanism that keeps mammals from physically acting out their dreams in dogs, and found the animals acted out activities from their daily lives when dreaming, like running, playing and eating. Experts also say in general, larger breeds experience longer dreams while smaller breeds experience shorter dreams, and that smaller breeds dream more often than larder breeds.
To help your dog avoid nightmares, be sure to provide him or her with a loving household and healthy lifestyle. Also, it was found dogs sleep better in a familiar spot than they do elsewhere.