Jonesy, Beaver, Pete, and Henry are four friends on an annual hunting trip in Maine. As children, they all acquired telepathic powers which they call "the line" after saving a mentally handicapped boy named Douglas "Duddits" Cavell from bullies and befriending him.
One night, Jonesy sees Duddits beckoning him to cross the street, but as he does so Jonesy is hit by a car. His injuries heal with mysterious speed and six months later he is able to make it for the group's annual trip. Jonesy rescues a man lost in the forest named Rick McCarthy. He is very ill, so Jonesy and Beaver let him rest and recover inside their cabin. Suddenly, herds of forest animals flee past their cabin, followed by two military helicopters that announce the area is now quarantined. Jonesy and Beaver return to the cabin to find a trail of blood from the bedroom to the bathroom, where Rick is sitting semi-catatonic on the toilet, which is now covered in blood. Rick is thrown from the toilet, dead into the tub as a creature writhes and screams in the toilet. Beaver attempts to trap the creature under the toilet lid, but the three-foot long lamprey-like creature, with multiple rows of razor-sharp teeth, kills him. Jonesy tries to escape but is confronted by a large alien called Mr. Gray, who possesses Jonesy's body and emits a red-dust around the entire cabin.
Nearby, Henry and Pete crash their SUV to avoid running over a frostbitten woman from Rick's original hunting party. Henry walks for help while Pete stays with the woman. She dies and also excretes a worm, which Pete barely manages to kill. Mr. Gray tricks and kidnaps Pete, but Jonesy telepathically warns Henry to stay hidden. Henry returns to the cabin to find Beaver dead and the worm that killed him laying a group of eggs. To kill all of the alien larvae, he sets fire to the cabin.
Meanwhile, an elite military unit specializing in extraterrestrials, led by the slightly unhinged Colonel Abraham Curtis, seeks to contain everyone exposed to the aliens. Col. Curtis is planning to retire after this operation and will pass command, along with a pearl-handled stainless-steel .45 pistol, to Captain Owen Underhill, his trusted friend and second in command. The two lead an air-strike into a large forest clearing where the aliens' spaceship has crash-landed. The aliens use telepathy to ask for mercy, but the helicopters massacre most of the aliens with mini-guns and missiles. The alien ship self-destructs, destroying the remaining aliens and two helicopters.
Jonesy retraces his memories of the area while watching Mr. Gray use his body. Mr. Gray tries to coerce Pete into cooperating but bites him in half when he refuses. Jonesy realizes that Mr. Gray possessed him, not by chance, but to access past memories of Duddits which he needs. Henry arrives at the fenced-in concentration camp only to realize that Col. Curtis plans to kill all of those quarantined. Henry convinces Underhill to prevent this by going over Curtis' head and having him relieved.
Henry and Underhill break out of the camp and head to Duddits' home. Duddits, who is dying of leukemia, informs them Mr. Gray is headed for the Quabbin Reservoir to seed the water with alien larvae. Curtis, realizing the danger looming to the entire planet, leaves the camp in his armed helicopter and tracks down Henry, Underhill, and Duddits via a micro-chip in the pistol. At the reservoir, Underhill is mortally wounded and dies shortly after he shoots Curtis down.
In the reservoir's pump house, Henry uses Underhill's machine gun to kill Mr. Gray's worm but cannot decide if Jonesy is possessed. Duddits confronts Mr. Gray, who finally exits Jonesy's body. The two struggle as Duddits reveals himself to also be an alien of a different race. Both aliens explode in a cloud of red-dust which briefly resembles a dreamcatcher. Jonesy, now himself again, steps on the final alien larva before it can escape and contaminate the reservoir.
Dreamcatcher was filmed around Prince George, British Columbia.
With a box-office gross of $33,685,268 in the North American domestic market, Dreamcatcher earned only half of its estimated $68 million production budget, barely surpassing it worldwide with $75,715,436. Thus the film is considered a flop.
In a 2012 interview, during a promotional tour for his film Darling Companion, Kasdan admitted that the commercial failure of Dreamcatcher left him "Wounded careerwise...But not so much personally. I've been personally wounded by other movies, where I'd written it, and thought, 'Oh, God, the world's not interested in what I'm interested in.' With Dreamcatcher, the career was hurt. I was planning to do The Risk Pool with Tom Hanks. I had written the script from a great book by Richard Russo (Nobody's Fool). And it didn't happen. Then another one didn't happen. Meanwhile, two years have passed here, two have passed there. That's how you're wounded."
The film received mixed to negative reviews from critics, earning a 30% "rotten" rating on review aggregation website Rotten Tomatoes based on 168 reviews.
Mick LaSalle's review for the San Francisco Chronicle summed up the film as "a likeable disaster." Richard Roeper commented that "not since Death to Smoochy have so many talented people made such a mess of things."
Roger Ebert gave the film 1.5 stars out of a possible 4, writing: '"Dreamcatcher" begins as the intriguing story of friends who share a telepathic gift, and ends as a monster movie of stunning awfulness. What went wrong?" Ebert thought Jonsey's Memory Warehouse was a highlight, and intriguing enough to be the focus of a film, though Dreamcatcher neglects the concept to instead emphasize gore.