I recall the dreams in The Ninth Configuration- the moon landing, jungle sequence. A number of movies use this vehicle to move their narrative, Footsteps On The Moon is another one. Do you recall some? Rosemary's Baby?
Dreams in films virtually never resemble my own experience of dreaming. The one director who does convince me of dreamlikeness is AndreĆ Tarkovsky.
My favorite dream sequences are in 1988's Paperhouse. But that might be cheating a bit. I remember a bad DTV monster movie called The Runestone and the only part I remember was a fake out where a character wakes up, goes into the bathroom, opens the medicine cabinet and suddenly the monster reaches out from the cabinet and then the character wakes up again. However this was likely done best in An American Werewolf in London, a movie where possibly the scariest bits are the dream sequences. Those freaky Nazi pigs are something, they could have centered a whole movie around them.
Horror is my genre so plenty of greats pop into mind, the ending of Carrie, the freaky mom/subway in The Exorcist, the larva baby in The Fly and the chest burst in Aliens. However, IMO the scariest dream sequence is the zombie baby crawling on the ceiling in Trainspotting. If that counts then so does Fritz Lang's classic noir Woman in the Window and my precious Phantasm. In fact the latter had dream sequences within the film, which is itself an extended dream sequence.
Sue's nightmare at the end of the 1976 Carrie (already mentioned): And Brian De Palma gets off another good one at the end of Dressed to Kill (1980).
Carnival of Souls (1962) features some of my favorite dream sequences, one 47 minutes in and an extended one 62 minutes in, the latter has much bearing to not only her being a ghost, but her existence as a social misfit. The lack of natural sound and overdubbed voice actually makes it more eerie. I love the shout-out to Footsteps on the Moon. Not sure if it is a dream or something the character just saw on TV, but it certainly has something to do with her paranoia and the way the plot unfolds.
The ending of Carrie, starting about 1 minute in. One of the best jump scares ever, and I love how it is shot backwards but it still plays like it is real.
From Pal Joey... Frank Sinatra as Joey: "Dream Sequence (What Do I Care For a Dame?)" Frank Sinatra - "What Do I Care For A Dame" from Pal Joey (1957) - Bing video