Sleep disruption is commonly associated with psychotic experiences. While sparse, the literature to date highlights nightmares and related distress as prominent risk factors for psychosis in students. We aimed to further explore the relationship between specific nightmare symptoms and psychotic experiences in university students while examining the mediating role of emotion dysregulation. A sample (N = 1273) of student respondents from UK universities completed measures of psychotic experiences, nightmare disorder symptomology and emotion dysregulation. Psychotic experiences were significantly more prevalent in students reporting nightmares (n = 757) relative to those who did not (n = 516). Hierarchical linear regression analysis showed that psychotic experiences were significantly associated (Adjusted R2 = 32.4%) with perceived nightmare intensity, consequences and resulting awakenings, and with emotion regulation difficulties. Furthermore, multiple mediation analysis showed that the association between psychotic experiences and nightmare factors was mediated by emotion regulation difficulties. Adaptive regulation of dream content during rapid eye-movement sleep has previously been demonstrated to attenuate surges in affective arousal by controlling the intensity and variability of emotional content. Difficulties in emotion regulation may partially explain the experience of more intense and disruptive nightmares among individuals with psychotic experiences. Emotion regulation may represent an important control mechanism that safeguards dream content and sleep quality.