What term describes the feeling of living in a dream-like state?

Derealization refers to a sensation where an individual feels detached from their surroundings, experiencing the world as if it were unreal or dream-like. This phenomenon often involves feelings of distortion or disconnection from one's environment, leading to sensations of being in a movie or dream rather than in reality.

While depersonalization is closely related and involves a sense of detachment from one's self, derealization specifically focuses on the perception of the external world as dreamlike or surreal. Psychosis and delusions relate to changes in thought processes and perceptions of reality, but they encompass broader and different aspects of mental health than the specific feeling of unreality characterized by derealization. Therefore, this term aptly describes the feeling of living in a dream-like state, making it the correct choice.