This paper presents a theory of dreams and long-term memory structure that proposes that both entities are closely related. The theory is based on a variation of Freud's dream theory: (1) Freud's “unconscious” is relabeled the “long-term memory structure” (LTMS); (2) it is proposed that dreams are ever-present excitational responses to perturbations of perceptions and thought, during waking life as well as sleep, which only become conscious when the executive function of waking life ceases; and (3) Freud's “dream work” is reinterpreted as describing the predream storage transformation of perceptions and thought into the LTMS. One further conjecture is made: Memories are stored in the LTMS according to what is already in the LTMS. The observables of Freud's theory remain the same. The new theory is also consistent with recent experimental findings and suggests a partial basis for personality: the selection process of the storage transformation. The existence of a consciousness pointer is hypothesized to reflect dreams being limited to a single thread.