Back in the TARDIS the Doctor wrestles with the controls as the cloister bell chimes. He is concerned with the state of things but reminds Amy and Rory that this might not be real. Amy is convinced that she is awake but Rory points out (and she agrees) that travelling with a bow-tie wearing alien in a box that is bigger on the inside is no guarantee of truth. The power in the TARDIS abruptly fades and the lights dim. The Doctor says that the TARDIS is dead. He hears the birds again and reminds them to remember how real things feel. Amy asserts that it is real.
They wake up in Leadworth with Amy declaring that this is the reality. The Doctor checks for motion blur or pixilation before suggesting that they are in Rory's dream. He sees a nearby old peoples' home (the Sarn Residential Home) and feels that there is something not right about it so they should "go and poke it with a stick." Inside the home he is drawn to an old woman named Mrs. Poggit, who makes him try on a jumper she is knitting for her grandson. Before he can work out what is wrong the birds sing again and the trio fall to the floor.
They wake in the powerless TARDIS. With them is a man who calls himself the Dreamlord. He wears a tweed jacket and a bowtie but claims not to be convinced by the look. In fact he is sneeringly contemptuous of the Doctor ("any more tawdry quirks and you could open a tawdry quirk shop") and insulting to Rory (who he calls the 'gooseberry') as well as Amy (who, he says, will have to make a choice between her men). He tells them that they are going to be presented with a choice: they will face mortal danger in both worlds but only one of the worlds is real. They wake up in the sitting room at Sarn but the old people are gone. The Dreamlord, posing as a doctor, looks critically at a scan of the Doctor's brain. He tells them that if they are killed in the dream world, they will wake up in the real one but death in the real world is permanent
The Doctor notices that all of the old people have left so they go outside to a playground where a party of school children passes Mrs. Poggit. They fall asleep and reawaken in the TARDIS. It is freezing cold in there and, while Amy improvises some ponchos for them the Doctor creates a generator from some kitchen utensils. This powers up the scanner so that they can see the TARDIS is on a collision course with a cold star; they have 40 minutes before they hit but they will have frozen to death long before then.
Back in Leadworth, they wake up to see that the children have been reduced to piles of dust. A group of old people walk determinedly towards them and the Dream Lord reappears. He tries to persuade them that this must be the dream world. The Doctor decides that he knows who the Dream Lord must be because there is only one person in the universe that hates him so much. The old people open their mouths to reveal each contains a single eyeball. The Doctor says that there is a whole creature inside, keeping the old folk alive. Mrs Poggit says they are the Eknodine and their world was taken from them. In turn they will take the Earth for themselves. The Eknodine fire a gas from their mouth and turn a passing postman to dust. Amy and Rory escape back towards their house, Rory having to attack an old lady on the way.
The Doctor is chased through the village and enters a butcher's shop. The Dream Lord is posing as the butcher. He laughs as the birdsong starts and the Doctor struggles to keep awake. The Dreamlord welcomes the old people into his shop while the Doctor locks himself inside the freezer and collapses into sleep. He wakes in the TARDIS with Rory and Amy. The Dream lord reappears and decides to split them up so he can be alone with Amy. The Doctor and Rory fall asleep again.
Rory wakes on the stairs of his house with Amy asleep beside him. Old people are trying to get in so he drags her upstairs to the nursery. The Doctor uses his sonic screwdriver to power up the light bulbs in the shop, temporarily blinding the Eknodines while he escapes. He finds a VW camper van and drives through the village, picking up people as he goes before the old folk get them. He drops them a t a church before driving on to find his companions.
As the TARDIS closes in on the cold star, Amy sits on the steps of the console room, the sleeping Doctor and Rory by her feet. The Dream Lord appears in a silk robe saying that "anything could happen" now that they are alone. He asks if she thinks she is the only girl that the Doctor confides in and then asks if she knows what the Doctor's name is. He agrees that having Rory would be a consolation for losing the Doctor. He adds that her men are waiting for her to decide: "Amy's men, Amy's choice."
As the Doctor drives quickly along the country road, the Dreamlord appears in the seat behind him (dressed as a motor racing driver) and taunts the Doctor about his friendships and the way he constantly leaves people behind while replacing them with younger companions.
Amy wakes in the nursery. Rory grabs a pair of scissors and cuts off his ponytail for her as the Doctor climbs in through the window. Rory is attacked by Mrs. Poggit. He begins to turn to dust but manages to say "look after our baby" to Amy before he dies. She decides that this is the dream, because she doesn't want to live without Rory. She leads the Doctor out to the van while the Eknodines stand back to watch. The Dream Lord watches as she drives the van into the house, killing herself and the Doctor.
The TARDIS is filled with ice as the trio wake up. The Dream Lord returns and admits he is beaten. He restores the TARDIS power and vanishes. The Doctor decides that neither of the adventures was real, both were dreams, and then sets the TARDIS to self-destruct. It explodes in a blinding white flash.
The Doctor is alone at the controls when Amy and Rory come in from elsewhere in the TARDIS. He shows them some specks of Psychic Pollen from the Candle Meadows of Karass Don Slava which, he says, had fallen into the Time rotor and heated up, thus creating the dream state. He takes the pollen to the door and blows it into space. He tells the others that the Dream Lord was actually him. The pollen had brought out the dark side of his own personality. Rory wonders what stopped the Leadworth dream. Amy tells that she drove the van into the house even though she did not know which world was real. Rory kisses Amy and the Doctor asks if he should go for a swim and leave them to it. Rory says that the Doctor can take them anywhere, he is happy for it to be "Amy's choice".
As the Doctor sets the coordinates he sees that his reflection is, briefly the Dream Lord's face.