The function of REM sleep dreaming is still unknown. We situate our approach to understanding dream phenomenology and dream function within that part of evolutionary theory known as Costly Signaling Theory (CST). We contend that many of the signals produced by the dreaming brain can be and should be construed as "costly signals"-emotions or mental simulations that produce daytime behavioral dispositions that are costly to the dreamer. For example, often the dreamer will appear in the dream as handicapped in some way (i.e., no clothes, no ID, no money, is under attack, being chased etc.). The dreamer, during waking life, is then influenced by the carry-over effect of the unpleasant dream content. The informational and affective content of the dream creates a mental set in the dreamer that operates during the daytime to facilitate the signaling of a "handicapped" Self. The subtle signaling effect might be via display of the intense emotions or physical demeanor that had first appeared in the dream. When the dreamer shares his dream with others the dream has a more direct impact on waking life and social interactions. In effect, the dreamer uses his or her dreams to adopt a selfhandicapping strategy when dealing with significant others. The increased use of costly signals (the self-handicapping strategy) during the daytime then facilitates some vital communicative goal of the dreamer.