Slappy in Dreamland (Goosebumps Slappyworld #16) by R.L. Stine

Richard Hsieh's life is about to become a total nightmare. His dad studies dreams and they hook his new Slappy doll up to the dream machine as a joke. All of a sudden, Richard's dreams are becoming scarier and scarier. Each time, seeing Slappy, his birthday present, come to life and wreak havoc. But they're only dreams, right? When his cousin Willow comes to spend a few days with him, she, too, begins to dream of Slappy. It's impossible! But when Slappy threatens to invade more kids' dreams, they’ll have to figure out how to defeat him before he becomes a dream master.