This study aimed to explore the relationship between lucid dreaming, psychosis proneness, nightmare and suppression. It was hypothesized that attitude towards dream and dream recall would have a relationship with lucid dream and psychosis proneness, dream lucidity as a predictor of psychosis proneness, suppression and nightmare as mediator and moderator in between the prediction respectively, and the difference by gender and institute among variables. The survey method was used for data collection, where the total sample was (N=220) with Men (n=96) and Women (n=124) of the age range of 18-26. The Inventory of Personality Organization (Lenzenweger, Clarkin, Kernberg&Foelsch, 2001), The Lucid and Consciousness Scale (Voss et al., 2013), The Mannheim Dream Questionnaire (Schredl, Berres, Klingauf, Schellhaas&Göritz, 2014) and Self-Regulation Withholding Negative Emotion (Kim, Deci& Zuckerman, 2002) were used to access psychosis proneness, lucid dream, nightmare and suppression respectively. The result of the Pearson Correlation revealed that attitude towards dream and dream recall is associated with dream lucidity and psychosis proneness. Linear regression revealed that lucid dreaming is a positive and significant predictor of psychosis proneness. Nightmare distress as a moderator negatively and significantly influences psychosis, while suppression does not influence psychosis proneness. Similarly, the t-test result significantly reported that men were higher on dream lucidity and psychosis proneness than women. Present study proves relevant to our culture that obsession for control of dreams can lead to unhealthy psychological health. Yet lucid dreams can be used to treat nightmare distress, and our cultural, men dominant nature makes them high among lucid dreaming and psychosis proneness. Further, it is guided to explore more causal factors of lucidity predicting psychosis.