We have seen that, in Demons by Daylight, the focus on the fluctuating perceptions of a possibly disturbed individual rendered the stories akin to dream-narratives, although none of them was in fact presented unambiguously as such. While they figure in a number of Campbell's stories, dreams—and their possible intrusion into the mundane realities of daily life—are, in different ways, at the centre of two of Campbell's most powerful works: Incarnate, one of his finest novels, and Needing Ghosts, a separately published novelette.

Incarnate—written between 1981 and 1983 and published in 1983— opens with an experiment on dreams conducted in Oxford by Stuart Hay and Guilda Kent. Five individuals participate, all of whom have confessed to having dim precognitive faculties. The nature of the experiment is not elucidated, and it ends abruptly with possibly traumatic psychological results for some or all of the participants.

The novel then takes up the story of the five individuals eleven years after the experiment. It is at this point that Campbell begins an extraordinary tapestry of narration in which the lives of the five individuals—who have not had anything to do with one another in the interim—become insidiously intermingled. For the purposes of analysis, it will be necessary to pursue the threads of each character's activities before examining how their fates become enmeshed.

Joyce Churchill has become the head of a small old folk's home that is now threatened with closure by the local government. One day her husband Geoffrey, a dealer in stamps, thinks he sees some entity like a huge baby—‘naked and fat and doughy white’ (I, 64). Later an ancient woman shows up at their doorstep, and Joyce naturally feels sympathy and wishes to take care of her. While Joyce tries to marshal her elderly charges to protest against their eviction, the old woman staying with them appears to be inducing strange dreams in Geoffrey. Some change has come over Joyce also: she believes that she has found a new home for her people, but it later turns out that she has imagined the whole thing and has in fact been wandering the streets for days or weeks. The distinction between dream and reality is breaking down both for her and for Geoffrey.