It's all about the Brain: Hobson's Theory
J. Allan Hobson is a Professor of Psychiatry at Harvard Medical School, with at least four book publications relating to dream studies. Most important in the Psychedelic discussion is his book The Dream Drugstore which sets up a three way analogy between the psychedelic experience, psychosis, and dreaming. 
Hobson establishes his theory through a scientific analysis of brain chemistry during all three conscious states.
Serotonin and Dopamine are two neurotransmitters that are closely linked to psychosis and dreaming through either increased activity or dormancy. Interestingly enough they are also closely linked to the brain's activity during a psychedelic drug experience. In chapter 13, entitled “Good Trips and Bad: The Psychedelics” J. Allan Hobson claims that “dreaming, delirium, and psychedelic states all share a common generic mechanism: a shift in the neuromodulatory balance of the brain” (251). He finds a likeness between dreaming and psychedelic drug use in that they both induce a block of serotonin to the brain and likewise a link between psychosis and psychotomimetics, which is an enhancement of the neurotransmitter dopamine. The modulation of serotonin creates for both the dreamer and the drug user visual hallucinations, while the dopamine boost induces feelings of euphoria and dysphoria. Ultimately in his work Hobson would like to inquire into whether “waking consciousness can be altered in such a way as to maximize the autocreative aspects so prominent in dreaming while returning enough wake state consciousness to critically analyze, validate, and report the creative product,” in other words Hobson would like to understand the dream state in terms of its waking counterpart, the psychedelic experience, in a way that can be used to benefit creative processes (9). That is not to say, however, that Hobson advocates the use of psychotomimetic drugs. On the contrary, he states in the first section of his book that although it is the ‘drug-brain’ dialogue that he is studying he admits to a “deep-seated bias against it,” however, “we have learned so much from drug experiments that we need to know about them even if we prefer more natural, physiological and psychological techniques” (31).
In The Dream Drugstore Hobson explains that “Subsequent psychiatric studies revealed that whereas euphoria was common in the 2-13 mg range, dysphoria regularly replaced it at doses above 25 mg,” and since with most drugs the tolerance level increases with regular use, it seems that nightmarish experiences become the norm the more a drug is used (249). This theory becomes evident in the texts when characters, such as Raul Duke in Fear and Loating in Las Vegas, ingest hallucinogenic drugs in excess.
Read more:
Dreaming and the Psychedelic Experience
Psychedelic Literature
What is the Psychedelic Experience?
It's all about the Brain: Hobson's Theory
Drugged up dreamy testimonies
The End of the Psychedelic Era
About the Author and Further Reading