Individuals who frequently experience nightmares report compromised sleep quality, poor daytime mood, and functioning. Previous research has aimed at linking these impairments with altered sleep architecture, but results were inconclusive. One plausible explanation is that only a few studies recorded markers of autonomic nervous system activity. For the first time, this study collected such markers under ecologically valid conditions with ambulatory assessment. In 19 individuals with frequent nightmares (≥1 nightmare/week) and 19 healthy control participants (<1 nightmare/month), measures indicating autonomic activation (heart rate, heart rate variability, respiration cycle length, electrodermal fluctuations, EEG arousals, saliva cortisol, REM density) were collected while applying ambulatory polysomnographic assessment during 3 consecutive nights. When nightmare participants reported a nightmare, we analyzed the last 5 min of REM sleep before awakening and compared these data to their non‐nightmares as well as to the dream episodes of control participants. Overall, there were no general differences in autonomic activation of nightmare sufferers compared to control participants. However, when nightmare participants experienced nightmares, autonomic activation was markedly increased compared to their own non‐nightmares and, to some extent, to control participant’s dreams. Significant intraindividual differences were found for all autonomic measures except in participant’s EEG arousals and cortisol levels. Group differences were found in EEG arousals and heart rate. In conclusion, ambulatory polysomnography demonstrates that nightmares are accompanied by increased autonomic activation. Results support the notion of impaired self‐reported sleep quality caused by one’s autonomic response rather than altered sleep pattern.