It is possible in a sense, but not really practical. A "Nightmare" spell wouldn't really work, because, really, nobody knows where dreams come from. You can influence a dream, but not create one, the exception being Lucid Dreaming, of course, but that applies to yourself, not others. You could, perhaps through "Dreamwalking," influence a specific person's dream, but the likelihood of accidentally stumbling into somebody else's dream by accident is very real.
In conclusion, it is possible, but it's just complicated..