Nightmare Daniel is an alternate version of Daniel Ferris from the Sandbox Verse. This version of Daniel died several years ago, in Justin Ferin's place, but somehow returned as some kind of subconscious entity, speaking to Justin in his dreams. He seems to have some connection to The Grotesque, but they appear to be separate beings.
This version of Daniel wears a black and white plaid hoody, and has rectangular pupils, much like a goat, implying that he might be something else's prey.
As with the Daniel-Verse, Nightmare Daniel had a falling out with Justin over Justin's joining of the Timberwolves. However, on the day that Justin would have been killed by Slender Proxies, Daniel arrived to stall them, and was gunned down.
When Justin get put into a coma by Oathbreakers, Daniel is able to make contact with Justin inside his subconscious, and shows him some glimpses of other universes, including the main Daniel-Verse and both Red Daniel and Enhanced Daniel's universes.
A lot of Nightmare Daniel's capable remain unknown. He seems to share some powers with the Grotesque. He's able to exist in Justin's subconscious, and can travel to the subconscious of other people using their relationships with each other as a bridge. As long as he's in someone's subconscious, he had access any of their memories, and can even see the memories of their counterparts in other universes. He can also see the memories of his own alternate selves.