Several lines of evidence converge to the idea that rapid eye movement sleep (REMS) is a good model to foster our understanding of psychosis. Both REMS and psychosis course with internally generated perceptions and lack of rational judgment, which is attributed to a hyperlimbic activity along with hypofrontality. Interestingly, some individuals can become aware of dreaming during REMS, a particular experience known as lucid dreaming (LD), whose neurobiological basis is still controversial. Since the frontal lobe plays a role in self-consciousness, working memory and attention, here we hypothesize that LD is associated with increased frontal activity during REMS. A possible way to test this hypothesis is to check whether transcranial magnetic or electric stimulation of the frontal region during REMS triggers LD. We further suggest that psychosis and LD are opposite phenomena: LD as a physiological awakening while dreaming due to frontal activity, and psychosis as a pathological intrusion of dream features during wake state due to hypofrontality. We further suggest that LD research may have three main clinical implications. First, LD could be important to the study of consciousness, including its pathologies and other altered states. Second, LD could be used as a therapy for recurrent nightmares, a common symptom of depression and post-traumatic stress disorder. Finally, LD may allow for motor imagery during dreaming with possible improvement of physical rehabilitation. In all, we believe that LD research may clarify multiple aspects of brain functioning in its physiological, altered and pathological states.