Clinical case illustrations of patients with an impairment of personality functioning (IPF) have repeatedly reported that progress during psychotherapy is reflected by alterations in dream content. However, quantitative studies based on samples of psychotherapy patients are scarce. As a core component of both personality functioning and contemporary psychodynamic dream theory, the construct of affect regulation is of specific significance in this context. To test if improvement in personality functioning in the course of psychotherapy is associated with an increasing ability to regulate affects in dreams. In a longitudinal design, affect regulation was compared in N = 94 unsolicited dream reports from the first vs. last third of long term psychotherapy of ten patients with initial IPF. Dream reports were transcribed from recordings of the sessions. Expert ratings of the level of personality functioning were obtained using the Scales of Psychological Capacities. The capacity for affect regulation was assessed using the Zurich Dream Process Coding System. Group differences were assessed using linear mixed models, controlling for dream length as well as the nested structure of this data set. Patients demonstrated an increased capacity for affect regulation in dreams that was primarily evident in three core features: the complexity of dream elements (cf., e.g., parameter attributes, p = 0.024); the extent of affective involvement in the dream ego (cf., e.g., parameter subject feeling, p = 0.014); and the flexibility to regulate the dynamics of safety/involvement processes (p ≤ 0.001). This pattern was especially prominent in a subgroup (n = 7) of patients with more pronounced improvements in personality functioning. These findings support the hypotheses that decreasing IPF during psychotherapy is associated with increases in the capacity for affect regulation in dreams. Thus, researchers and therapists can utilize dream reports to illuminate the important aspects of treatment progress in clinical practice.