Yes, babies can definitely dream. They even dream before they are born. I can't imagine what a baby in the womb would dream about, but they do. Most infants seem to have happy dreams, they can laugh and smile while dreaming long before they do it while awake.Make sure your son isn't experiencing any stress and is in a generally happy, upbeat environment and he should be happier in his dreams. At two months old babies don't have much, if any imagination, so bad dreams are more like memories. During the day, pick him up when he cries. Don't try to get him to self soothe at this age, he's too young. You won't spoil him by picking him up and responding to his needs. If he feels safe and secure while he's awake he'll feel the same way when he's asleep. Also, if you aren't already, have him sleep in the same room as you so that you can respond to him quicker at night. Even if you have a baby monitor it still takes more time to wake up and your baby has to cry for longer which will make him feel alone and scared.