The most common and most likely answer to this crossword clue is the 9 letter word DREAMLAND
I've seen this crossword clue in Independent
D
R
E
A
M
L
A
N
D
More clues leading to the result DREAMLAND
- After surgery, male doctor and nurses sleep there?
- Source of nightmares has fellow clutching top of leg in terror
- Nod, seeing chap cross line in fear
- Sleep in Happy Valley?
- Blissful place, Italian city, not one gripped by fear
- Man, having taken a dose of LSD, is overcome by dread in a world of shadows
- Badly alarmed by North Dakota, an unreal place
Buddy explains!

The straight part
We know that "Source of nightmares" is the straight/definition part of the clue. The straight part is often a synonym or definition, in this case source of nightmares = dreamland.The cryptic/wordplay part
In cryptic crossword there's often an wordplay/cryptic part as well.This part involves a more complex hint, such as an anagram, homophone, hidden word, etc.
Sadly, We don't have an explanation for this specific crossword clue yet.
What does DREAMLAND mean?
DREAMLAND noun- An imaginary world experienced while dreaming.
- An imagined world that is ideal yet unrealistic; a fantasy.