Wes Craven and Bruce Wagner came upon with a concept for this film that involved time travel through dreams. However, producers Robert Shaye and Sara Risher felt that this was too high a concept for a Nightmare On Elm Street sequel and didn't think it fit the formula that Craven created with the first film.
Oscar-winning screenwriter Brian Helgeland was hired to write the film after being recommended by Robert Englund, for whom he penned the screenplay to Englund's directorial debut 976-EVIL. The film had a release date set but no script or director, and Helgeland was hired under the condition that he could deliver the script within seven days. He was advised by New Line head Robert Shaye that if the script came in a day late, they didn't want it. Helgeland then flew home to Massachusetts for Christmas and wrote the script sitting at his father's kitchen table. He FedExed the finished screenplay back to Los Angeles and made his deadline. Based on this script, director Renny Harlin signed on, and the film marks Helgeland's first screen credit. Though 976-EVIL was his first produced screenplay, it was released after A Nightmare On Elm Street 4: The Dream Master.
The scene where Alice and Rick are watching home videos was a last minute addition. In an interview with Andras Jones he stated that because of the writers strike and because of Renny Harlin's poor English, he and Lisa Wilcox wrote their own dialogue for it.
In the scene where Kristen is in the hospital after hitting her head; when the nurse changes into Freddy and he had the vials of blood in his right hand, one of the vials (the one closest to the camera) says "Englund" - the last name of the actor who plays Freddy.
A magazine can be seen in Kristen's room that has a picture of Johnny Depp, who starred in the original 'Nightmare on Elm Street, A (1984)' film and had a brief cameo in the sixth film of the series, Freddy's Dead: The Final Nightmare (1991).
Kincade's dog is named Jason, a possible nod to the Friday the 13th slasher films where the slasher's name is Jason Vorhees. What makes this rather interesting is in this movie Jason (the dog) brings Freddy back to life where in Freddy Vs. Jason, Freddy brings Jason back to life.