Freddy Krueger returns once again to terrorize the dreams of the remaining Dream Warriors, as well as those of a young woman who may be able to defeat him for good.

A psychiatrist, familiar with the knife-wielding dream demon Freddy Krueger, helps teens at a mental hospital battle the killer who is invading their dreams.

The alien criminal from the first movie is dead, but he left a few eggs which are hatching now. The good alien, who still inhabits Tom Beck's body, has been waiting just in case this happened. Unfortunately, his presence in the body has taken a terrible toll on it, draining it of life energy. Additionally relations with Beck's daughter Juliet (now a cop) have deteriorated. But when the killing starts again, they will need to work together to stop the new generation of aliens.

A cop and an FBI agent race for answers after law abiding people suddenly become violent criminals.