The Undreaming is a mysterious force or entity. Mentioned by the monks at the Tibetan monastery, it is seen only once in Dreamfall, at the beginning when Brian Westhouse is sent from Stark into the Storytime. He meets the Vagabond who asks how he got there and then demands that he leave because otherwise something will find Westhouse in there. As Brian watches, a black mist appears from the sky overhead and attacks him - a mass the Vagabond names the Undreaming. What happens to Brian afterwards has been the subject of much speculation, as is the nature of the Undreaming itself.
A drawing of the Undreaming can be found in Faith's room in the Saint Petersburg laboratory. When Zoë Castillo enters the Storytime, the Vagabond asks her to tell him her own story, and she must hurry, because the Undreaming is unchained. The only other mention of the Undreaming is a sentence at the end of the credits repeating that 'The Undreaming is unchained', but what this phrase means is a mystery.
In Dreamfall Chapters, we learn that the Undreaming has indeed entered Westhouse while in Storytime. It slowly starts to turn Westhouse crazy, as it begins to speak to him in his head and fill him with want for chaos. It is the reason why Westhouse begins to drink, to try and numb the voice.
Westhouse then decides to kill all magic in Arcadia, eaten up by the darkness within, in hopes that it will kill the Undreaming ( ? ). He dons the identity of the Prophet and frees Roper Klacks from the calculator April Ryan had trapped him into. He uses a shard of Klacks' Soulstone ( originally the Yaga's, stolen by Lux and then stolen back by Klacks, then shattered by April ) to trap the Undreaming into, then puts the shard of Soulstone inside Kalcks, to avoid being eaten completely by the Undreaming.
Westhouse, as the Prophet, asks Klacks to build the Calculating Engine and convinces Mother Utana to build camps to which the Magicals will be sent. There, a search for a cure for magic begins. Everything is done to kill everything magical and let the Engine work ( it doesn't work when magic is close, as it is science incarnate ). The ultimate goal is to join Arcadia and Stark. The Prophet also kills the Draic Kin, soaking the Silver Spear of Gorimon in dragon's blood and further damaging the Balance.
Kian Alvane kills Roper Klacks with the Silver Spear of Gorimon, breaking the shard of SoulStone hidden inside the wizard, and unleashing the Undreaming. It then attacks Westhouse and sends him back to Stark, where it attacks Helena Chang.
Zoë is there, carrying Lux and the Baeb-Ayae-Gh'aa inside her, and stops the Undreaming from killing Chang. Getting insinde Westhouse's mind, controlled by the Undreaming, enables Lux to communicate with the Undreaming and the two merge back together, with the Yaga. In doing so, the Balance is restored, and the world is saved.