We show that every sum of squares in the three-variable Laurent series field R( (x, y, z) ) is a sum of 4 squares, as was conjectured in a paper of Choi, Dai, Lam and Reznick in the 1980's. We obtain this result by proving that every sum of squares in a finite extension of R( (x, y) ) is a sum of 3 squares. It was already shown in Choi, Dai, Lam and Reznick's paper that every sum of squares in R( (x, y) ) itself is a sum of two squares. We give a generalization of this result where R is replaced by an arbitrary real field. Our methods yield similar results about the u-invariant of fields of the same type.