I’m a fan of the toilet scene from Trainspotting. The fantasy part is less than a minute and very simple, but the complete disconnect between what he imagines vs. what he’s actually doing is brilliant. Warning - it’s a little gross.
Joe Gideon’s (Roy Scheider) dream sequence after his heart surgery in All That Jazz.
Too long for a link, I think.
I also immediately thought of that one. Living in Oblivion is great.
The fantasy sequence from High Fidelity (language and violence warning).
The dream sequences from “A Christmas Story.” (sorry, no links) I think there are four; my favorite part–Ralphie shoots the desperados in his back yard and the corpses have big black Xs on their eyelids.
Crap. Never mind.
And some very early Dinklage. That guy has such a beautiful voice.
The heaven scenes from What Dreams May Come
The Fall is mostly fantasy sequences.
It’s not in film, so I suppose it doesn’t meet the OP’s criteria, but “Restless” was definitely the most true to life representation of a dream I’ve seen. It rather masterfully captured dream logic, where everything is weird but familiar and there’s a sort of tenuous connection between events, where if you stay in the moment everything feels like it makes sense. But as soon as you stop to think about it, you realize how nonsensical it is. Watching it is like waking up from a vivid dream and trying to piece together what it was about.
Not allowed by the OP 
but along the same lines, all of “Eyes Wide Shut” 
This was the first thing I thought of.
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Not allowed by the OP but along the same lines, all of "Eyes Wide Shut
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It’s been years since I’ve seen this so I don’t remember it well. Are you making a joke or was it really all just a dream?
I know it’s a (deliberate ?) cheap shot, but the last scene in Brian DePalma’s “Carrie” is rather effective.
As I recall (it’s been a long time since I’ve seen it), Oliver Stone did a pretty good job of capturing the feel of an acid trip during the Death Valley sequence in The Doors.
The story of the three brothers in Harry Potter and the Deathly Hallows. I can’t remember if that was in 1 or 2, but I’m going to assume 1.
I also think there was an animated sequence in Hellboy 2 that I remember was quite good.
The dancing dwarf in “Twin Peaks.”
From Gay Purr-ee (1962)
Jean Tom (Robert Goulet) and Robespierre (Red Buttons) are drugged with champagne by Money Cat (Paul Frees) and have their own Champagne Dream sequence before they realize they’ve been Shanghaied to the Klondike
“Bubbles” is a sort of UPA version of “Pink Elephants on Parade”. But it was produced (though not directed) by Chuck Jones!
This may not quite fit the OP as it is more an “imagined scenario” than a “dream”, per se.
But the one that comes to mind is from “Hannah and Her Sisters”. Woody is seeing his doctor about a possible brain tumor (which he is convinced is there, and has been fretting about), and is awaiting the results from this tests (X-rays, MRI, etc.)
But that was really happening!
That’s my choice. Not a movie, but still. Cost me some sleep.
Mrs. Palmer’s vision of killer Bob at the foot of Laura’s bed is the scariest thing I’ve ever seen on TV.
Another film
Eternal Sunshine of the Spotless Mind. About 2/3 of the film takes place inside Joel’s mind as he is undergoing a procedure that erases selected memories.
It’s really trippy.