From Scientific American:
You awake with a pounding heart and clammy hands. Relax, you think to yourself—it was just a bad dream. But are nightmares truly benign? Psychologists aren’t so sure. Although some continue to believe nightmares reduce psychological tensions by letting the brain act out its fears, recent research suggests that nocturnal torments are more likely to increase anxiety in waking life.
In one study Australian researchers asked 624 high school students about their lives and nightmares during the past year and assessed their stress levels. It is well known that stressful experiences cause nightmares, but if nightmares serve to diffuse that tension, troubled sleepers should have an easier time coping with emotional ordeals. The study, published in the journal Dreaming, did not bear out that hypothesis: not only did nightmares not stave off anxiety, but people who reported being distressed about their dreams were even more likely to suffer from general anxiety than those who experienced an upsetting event such as the divorce of their parents.
More here.