Death can appear in dreams in many forms ranging from the near-death experience to wish-fulfillment projected on others. It may seem to be terrifying, or almost joyful in its sense of power.
The near-death experience can be either a psychological phenomenon or a physical one. The physical phenomenon comes from lucid dreaming in a nightmare condition. You may become aware of the body paralysis of the REM state and feel powerless to defend yourself in the dream. This can create an overwhelming sense of vulnerability to the threatening circumstances of the dream and a near-death experience.
The psychological facet is part and parcel of feeling endangered by your circumstances. This danger may be tangible or merely sensed in the dream. If it is tangible, the source of the danger is the area for interpretive work (whom, why, how, and what has endangered your life?). If the danger is merely sensed, it may symbolize ambivalence concerning a soul's transition into facets of self-awareness you may not want to completely embrace.
There is also a spiritual near-death experience. People who participate in actively seeking out-of-body experiences in dreaming may feel themselves unable to, or prevented from, returning to the body. These dreams are powerful images of how we sense the cosmos or spiritual realities impacting upon our lives.
Was the death a sudden deprivation of life or a release from the struggles of it? Moreover, as you became aware of dying, was it threatening or peaceable?
Death of self, loved one, or stranger. Dying in a dream is not too unusual, though if it happened with regularity our waking lives would probably begin to feel a little unstable. Often, derealization (see movies) accompanies death so your dream can continue with your observation. Otherwise, death is the wake-up point.
To die yourself is very troubling. Most people have not invested much emotional energy in preparation for death and feel that death is a strong enemy to be avoided. Being confronted with death is a place that is uncomfortable. By the way, how did you die in your dream and do you assign responsibility to anyone for your death? These are important questions.
The death of a loved one may be the result of numerous factors. You may feel genuine anxiety for that person's well-being. The death may be more symbolic than that as you struggle with the reality of your love for that person as weighed against repressed anger towards them. Finally, it may herald the passing of the relationship if the loved one is romantic and not familial in connection.
The death of a stranger can be the development or transition of different aspects of the self. Consequently, it is often useful to decide how you knew the stranger and whether you seemed deeply moved or only casually concerned with the death. It may be that the randomness of life in the central concern. In this case, looking at who else in the dream is concerned with the stranger's death and your connection to the fellow mourners is important. The death of a stranger may symbolize stereotypes that need to be rethought or explored as a means to a greater self-understanding. Are you being confronted with situations where your attitudes about others are being challenged?