<p>A subset of dreams challenges long-standing distinctions between simulation and memory. These, so-called epic dreams, are defined by immersive realism, emotional neutrality, and persistent autobiographical salience, and can be subjectively indistinguishable from lived experience. They are often recalled with mnemonic authority. In this Perspective, epic dreaming is argued to reflect a systems-level failure of REM sleep’s containment architecture, namely a convergence of neuromodulatory disruption, hippocampal novelty-misclassification, and oscillatory instability that permits internally generated content to enter episodic memory. A probabilistic model of this failure, termed MÖBIUS, is introduced to formalise the conditions under which simulation is mis-encoded as memory.</p>