FIRST comes drowsiness and a sense that it's time to rest. Eyelids grow heavy. Stray thoughts flicker through the mind as sleep begins, often with a sudden twitch. And then the human brain falls into a state of profound madness filled with hallucinations, delusions and confabulations.

Dreams unfold. We walk, run, fly and float through strange landscapes. Characters appear and turn into different people. Objects are transformed. A rope becomes a snake. Uncle Harry turns into a Tibetan monk and it all makes sense in some screwy, dreamlike way.

The bizarre nature of dreams is beginning to make sense to scientists who study the biological and physiological changes that occur in the brain during sleep, wakefulness and the many related states, like dreamless sleep, daydreaming and, some say, the writing of poetry and other creative acts.

For example, researchers have found that during sleep the brain is bombarded by wild, erratic pulses from the brainstem and flooded with nervous system chemicals that induce the insanity of dreams. Areas that control sleep are near areas that control body movements, which explains why eyelids grow heavy with drowsiness and why dreams are full of fictive movements.

Finally, the research is shedding light on the biological basis of some forms of schizophrenia, and may also help explain why deep meditation or isolation tanks can induce hallucinations and offer insight into the nature of consciousness itself.

"We study sleeping to understand waking," said Dr. Allan Hobson, a neuroscientist at Harvard University who has helped develop some of the leading theories on the biology of dreams. "We study dreaming to understand madness."

Dr. Hobson and his colleagues presented their latest findings at the annual meeting of the Society for Sleep Research in Boston last month.

Dream researchers disagree about many of the details, "but the Hobson model is the best thing we have going for us now," said Dr. Stanley Krippner, president of the Association for the Study of Dreams and a veteran dream psychologist. "It can tell us a lot about how memory is constructed and reconstructed and how people use personal myths" to define reality.

Machines like electroencephalograms that measure electrical brain activity and others that measure magnetic brain activity cannot distinguish the awake brain from the dreaming brain, Dr. Hobson said in a recent interview.

The awake brain receives copious amounts of information from the outside world, mainly in the form of light and sound frequencies, chemical signals and physical touch, Dr. Hobson said. It processes these signals in vast, oscillating networks of brain cells to form representations of the external world and combines these maps with memories, movements, emotions and forethought in a way that gives rise to self-awareness and an ability to navigate the world during waking hours.

The dreaming brain employs all of the same systems and networks, Dr. Hobson said, but with a few critical differences. Input from the outside world is screened out. Self-awareness ceases. The body is paralyzed. And everything that the dreaming brain sees, hears or feels is generated from within.

During sleep the nondreaming brain falls physiologically somewhere between these two states, Dr. Hobson said. New technology allows researchers to examine the chemical, electrical and physical properties of each state. "We can study each of these states to see what the differences are," he said.

The key to dreams is found in several tiny nodes within the brainstem that contain cells which squirt out different chemical transmitters, Dr. Hobson said. These cells have projections that carry the chemicals throughout the brain and modulate its activity. The projections also extend down to the spinal cord and help control movement.

The awake brain is dominated by so-called adrenergic chemicals released from two of these nodes, Dr. Hobson said. The cells fire these chemicals in pacemaker fashion, keeping the brain alert, enhancing attention and priming motor activity. In the adrenergic state thought processes are generally stable and the brain is not easily dominated by stray images. 'Gimmick' to Induce Sleep

As the brain goes to sleep, the adrenergic system begins to shut down, Dr. Hobson said. Other nodes release so-called cholinergic chemicals which, although active in performing important brain functions during the day, begin to dominate the brain's chemistry. Self-awareness ceases and memory is lost. The brain enters a state of dreamless sleep featuring fuzzy images. It is not organized.

The cholinergic neurons are located one millimeter away from neurons that control muscles in the eyelids, Dr. Hobson said. This is why the eyelids get heavy when cholinergic signals take over. "It's the body's gimmick to get you to sleep," he said.

Soon, Dr. Hobson said, adrenergic neurons cease firing altogether. Cholinergic chemicals decouple the extensive networks used for cognition and behavior. In this state, the brain is ultrasensitive to stray thoughts and can jump from one class of images to another without realizing contradictions. In other words, it dreams.

The bifurcations of thought and the bizarre nature of dreams are also driven by cholinergic neurons, he said. Instead of firing steadily, as they do during the day, these cells begin bursting hundreds of times a second and sending erratic pulses into higher brain regions. These pulses, called PGO, or pontine-geniculate-occipital, waves, occur only during dreams and have multiple effects.

First, they stimulate the body's motor centers, found in the brainstem. This would cause the dreamer to walk, run and carry out a vast repertoire of movements except that another signal is sent simultaneously to the spinal cord, resulting in total muscle paralysis except for the eyes. This increase in cholinergic activity is what makes many people twitch or startle when they are drifting off to sleep, Dr. Hobson said. And it explains why sleepwalking almost always occurs during nondream sleep, when the muscles are not paralyzed.

In dreams, Dr. Hobson continued, complex motor patterns are activated. "It's no accident that we are always in motion," he said. "We are practicing all sorts of movements in a kind of neural gymnastics." The Stuff of Dreams

PGO waves also bombard the brain's emotional circuits and give rise to the strong feelings that often accompany dreams, Dr. Hobson said. One-third of all adult dreams involve anxiety and fear, he said, followed by joy, anger, sadness, guilt and eroticism.

Finally, the PGO waves shoot into the brain's higher regions where vast networks for processing information reside. Except now, Dr. Hobson said, every sight, sound and sensory input is generated internally by the brain itself. The higher networks, which are used to making representations of the world during the waking state, try to make sense of the internal images and feelings by concocting stories in the cholinergic brain, he said. The repertoire of possible combinations of images, memories and story lines on any given night is extremely large, and chance stimulation probably plays a large role in the content of our dreams.

People can enter a cholinergic state without going to sleep, said Dr. Edgar Garcia-Rill, a neuroscientist at the University of Arkansas in Little Rock, in an interview after the Boston meeting. He points out that such states exist during meditation, as well as sometimes when people are in sensory isolation tanks. Pilots occasionally experience these states when they stare at nothing but blue sky. Hallucinations, as in dreams, may result.

Many scientific insights have occurred in dreams, when the brain is open to unusual associations, Dr. Garcia-Rill said. He suggested that poets may be more naturally cholinergic. And, in work underway in his laboratory, Dr. Garcia-Rill has found that some schizophrenics have an abnormal number of cholinergic neurons in their brainstems, and that this defect may explain the hallucinations that mark the disorder.

To explore dreams in a more natural setting than the hospital-based sleep laboratory, Harvard researchers recently invented a device called the Nightcap. It is a cloth bandanna, worn pirate-style around the head, attached to a wallet sized instrument that tucks under the pillow. One lead goes to a tiny box stitched into the bandanna that registers each time a person's head moves. A second lead sticks to one eyelid and records lid movements all night long. The lids move during dream sleep, whereas head movements tend to occur when dreams end and nondream sleep or the transition to wakefulness occurs, said Robert Stickgold, a researcher in the laboratory.

The Nightcap can record up to 30 nights of sleep, Mr. Stickgold said. The device plugs into a computer so that any individual's sleep patterns can be analyzed in minutes, easily and relatively inexpensively, while he sleeps at home in his own bed. A Nightcap user can program the device to sound a signal during a dream episode to wake him up, so that he can recall the dreams. Alcohol, Prozac and Exercise

Home dream reports are four times longer than dream reports taken in laboratories, Mr. Stickgold said.

In experiments described in the March issue of the journal Consciousness and Cognition, the Nightcap showed that alcohol use suppresses dream sleep, that Prozac intensifies it and that heavy exercise can result in no body movements throughout the night.

Mr. Stickgold said that researchers in Thailand plan to use the device to explore why many young men who live near the Laotian border die suddenly in their sleep. The current explanation is that the men are being visited by the widow ghost who punishes them for infidelity.

"We also hope to send the Nightcap into space," Mr. Stickgold said. Astronauts on the Mir space station could use it to study the effects of zero gravity on dreams: "Do you still shift your body after coming out of a dream? Are dream reports going to be different?" he said.

The Harvard laboratory is also studying the content of dreams for insights into changing brain states. Dreams are full of discontinuities, incongruities, uncertainties and jumps in plot, scene location, characters and objects. What do these say about dream mentation?

Using 453 dream reports from 45 volunteers, the Harvard researchers cut dream reports into segments at discontinuity points -- as when a beach scene abruptly and nonsensically turns into an indoor scene. The segments were spliced together in novel ways, while other dreams were left intact. Independent observers were asked to pick out the spliced dreams. They did no better than chance. The Nature of Consciousness

In a second experiment, the researchers studied character and object transformations in dreams. Can a teacher turn into a whale? Can a barn turn into a teacher? Apparently not, for when people were shown two columns of characters and objects and asked to pair those that made sense, they got it right 80 percent of the time.

"There are limits to the transformations that can occur at some deep category level," Dr. Hobson said.

Eventually, he added, research into sleep and dreaming may help explain the nature of consciousness. People cycle through different brain states every 24 hours, he said. If more can be learned about each state, it might be possible to subtract one from the other to learn how consciousness is engineered.

Diagrams: "Waking, Sleeping, Perchance Dreaming" The Nightcap, a home-monitoring device, has eyelid andhead sensors to record movements associated with dreaming. The lids move during dream sleep; head movements tend to increase when dreams end and non dream sleep or the transition to wakefulness occurs. (Source: Harvard University) (pg. C1) "The Sleep-Dream Cycle at the Brain-Cell Level" Two types of brain cells show different activity patterns in waking, non-dreaming sleep and dreaming sleep. The type called locus ceruleus neurons, controling the adrenergic chemical system, are most active during sleep. The types called giant pontine neurons, controling the cholinergic chemical system, are least active in waking, progessively more active in NREM sleep and most active in dreaming. (Source: Dr. J. Allan Hobson, Roche Products Inc.) (pg. C8)