Purpose of Review: Little is known about the presence of parasomnias such as nightmare disorder, sleep paralysis, REM sleep behavior disorder (RBD), and sleep-related eating disorders (SRED) in people with mental illness. A predominant view suggests that psychotropic medications might be contributing to parasomnias. This article summarizes knowledge regarding the relationships between psychiatric disorders and parasomnias, and possible confounds. A systematic search of the literature in the past 10 years identified 19 articles. Recent Findings: There were significantly elevated rates of parasomnias in psychiatric disorders (average prevalence of nightmares was 38.9%, sleep paralysis 22.3%, SRED 9.9%, sleepwalking 8.5%, and RBD 3.8%). Medication usage was only one of many risk factors (other sleep disorders, medical comorbidities, and substance abuse) which were associated with parasomnias. Summary: A strong association exists between mental illness and parasomnias which is not fully explained by medications. Prospective longitudinal studies are needed to develop a better understanding of the unique and shared variance from multiple risk factors.