While counterintuitive, there is evidence that some nightmares may serve a beneficial function. The theory behind this idea is presented within the context of a continuity hypothesis of dreaming where the negative emotions presented in a nightmare can lead to psychosocial development, just as some negative experiences do so during wake. The theoretical presentation is accompanied by a selected review of the most relevant studies and how the theory might be incorporated into psychotherapy when nightmares are not the presenting complaint.