Hallucinations, delusions, and functional neurological manifestations (conversion and somatic symptom disorders) of Parkinson's disease (PD) and dementia with Lewy bodies increase in frequency with disease progression, predict the onset of cognitive decline, and eventually blend with and are concealed by dementia. These symptoms share the absence of reality constraints and can be considered comparable elements of the PD‐dementia with Lewy bodies psychosis. We propose that PD‐dementia with Lewy bodies psychotic disorders depend on thalamic dysfunction promoting a theta burst mode and subsequent thalamocortical dysrhythmia with focal cortical coherence to theta electroencephalogram rhythms. This theta electroencephalogram activity, also called fast‐theta or pre‐alpha, has been shown to predict cognitive decline and fluctuations in Parkinson's disease with dementia and dementia with Lewy bodies. These electroencephalogram alterations are now considered a predictive marker for progression to dementia. The resulting thalamocortical dysrhythmia inhibits the frontal attentional network and favors the decoupling of the default mode network. As the default mode network is involved in integration of self‐referential information into conscious perception, unconstrained default mode network activity, as revealed by recent imaging studies, leads to random formation of connections that link strong autobiographical correlates to trivial stimuli, thereby producing hallucinations, delusions, and functional neurological disorders. The thalamocortical dysrhythmia default mode network decoupling hypothesis provides the rationale for the design and testing of novel therapeutic pharmacological and nonpharmacological interventions in the context of PD, PD with dementia, and dementia with Lewy bodies. © 2019 International Parkinson and Movement Disorder Society