During the eighth run of the game, the nightmare sequence occurs. The protagonist will awaken in their house as usual, but the Neighbor, now a gigantic size, stands right outside the house. If the protagonist were to look outside the window, they would notice that the sky has also turned yellow and blood red. After bending down and peeking at the protagonist through the window, the Neighbor will attempt to reach through the corridor to grab them, to no avail. The Neighbor eventually smashes through the window and grabs the protagonist, ending the nightmare. The protagonist cannot leave the house at any point during the sequence.
After the nightmare has ended, the protagonist will awaken once again in their house. From this point, the second stage of the game will begin and many elements of gameplay begin to change.
The Neighbor himself will switch to advanced idle mode where no longer constantly watch television, and will instead walk around the rooms of his house and do incomprehensible tasks. Because of this, gameplay will become more complicated.
Now the situation in the house will change. Furniture and items will be in other places than before (including the crowbar, hammer and copper key). In the rooms you can find strange buildings of different objects.
- Until you come to the window of the house during the nightmare, the Giant Neighbor will stand still and not move.
- Due to numerous bugs, you can escape from the locked house during the nightmare.
- In Beta 3 and the Act Final of the Release, the very first scene with the Giant Neighbor bending over and looking through the window is most likely a reference to the Pre-Alpha nightmare.
- If you approach the Giant Neighbor close enough, he will become normal size and catch you.