When my kids had nightmares when they were small, I would have them tell me about the nightmare and then I would tell them a dream to take its place – I usually picked something lovely like lambs frolicking in a meadow or bunnies nibbling on grass.  Then I would ask them if they would trade dreams with me – ask them to actually hand me the bad dream and then I’d hand them the good one.  I would tell them I was going to go and throw their dream away and they could put their dream into their head. 

It worked (and sometimes still does).