Shortly after being formed, Dream's former manager, Judith Fontaine, signed them to Clockwork Entertainment so they could begin working on their debut album. There, they recorded several tracks for the album. Subsequently, Dream parted ways with Fontaine and Clockwork Entertainment. Shortly thereafter, the group signed a record deal with Bad Boy Records. This meant that much of what was recorded at Clockwork Entertainment would be excluded from the album. In January 1999, original member Alex Chester left the group and was replaced by Diana Ortiz. With Ortiz on board, Dream recorded It Was All a Dream from 1999 to 2000.
It Was All a Dream was released on January 23, 2001. It spent 20 weeks on the Billboard Top 200, peaking at #6. The album sold 1.5 million copies in the U.S. and was certified gold by the RIAA on February 21, 2001, then platinum on March 5, 2001.
In order to promote the album, two singles were released: "He Loves U Not" and "This is Me". "He Loves U Not" was released on September 12, 2000 and was a transatlantic hit, peaking at #2 on the Billboard Hot 100, #15 on the Hot R&B/Hip-Hop Singles & Tracks, #17 on the UK Singles Chart and #35 on the Australia ARIA Singles Chart. "This is Me" was released on May 1, 2001 and although it wasn't as successful as "He Loves U Not", it did peak at #39 on the Billboard Hot 100 and #80 on the Hot R&B/Hip-Hop Singles & Tracks. "Miss You" and "In My Dreams" were supposed to be released as the album's third and fourth singles, but due to the September 11 attacks, plans for their release were cancelled.
Two other versions of the album were released: one version included two bonus tracks, "Baby" and "Back 2 U", released as tracks 18 and 19 with the same original track listing; the second version included three bonus tracks, "Baby", "Back 2 U", and "Daddy's Little Girl" (which features original member Alex Chester) and omitted "In My Dreams", "I Don't Like Anyone", "This Is Me", and "He Loves U Not (Remix)".
It Was All a Dream peaked at #6 on the Billboard 200 albums chart on February 10, 2001.