Chronic nightmares are very common in psychiatric disorders, affecting up to 70% of patients with personality or post-traumatic stress disorders. In other psychiatric disorders, the relationships with nightmares are poorly known. This review aimed to clarify the relationship between nightmares and both mood and psychotic disorders. We performed a systematic literature search using the PubMed, Cochrane Library and PsycINFO databases until December 2019, to identify studies of patients suffering from either a mood disorder or a psychotic disorder associated with nightmares. From the 1145 articles screened, 24 were retained, including 9 studies with patients with mood disorders, 11 studies with patients with psychotic disorders and 4 studies with either psychotic or mood disorders. Nightmares were more frequent in individuals with mood or psychotic disorders than in healthy controls (more than two-fold). Patients with frequent nightmares had higher suicidality scores and had more frequently a history of suicide attempt. The distress associated with nightmares, rather than the frequency of nightmares, was associated with the severity of the psychiatric disorder. Further studies assessing whether nightmare treatment not only improves patient–sleep perception but also improves underlying psychiatric diseases are needed. In conclusion, nightmares are overrepresented in mood and psychotic disorders, with the frequency associated with suicidal behaviors and the distress associated with the psychiatric disorder severity. These findings emphasize major clinical and therapeutic implications.