Virtual reality (VR) is designed to generate a convincing sense that people are somewhere other than where they physically are, despite knowledge otherwise. Many thinkers have noted parallels between such VR experience and lucid dreams, defined as dreams in which one knows they are dreaming. According to these parallels, this presentation highlights theory, findings, and implications from recent research on virtual lucidity (VL), a new construct similar to lucidity during dreaming, but regarding awareness that one is having a virtual experience. VL concerns the depth and breadth of this awareness, as well as the extent it affords regulatory monitoring and control. An initial empirical study of VL examined it in the context of a virtual threat scenario of walking, and being asked to step off, a wooden plank seemingly high above a city. Consistent with VL theory, lucidity in VR predicted lower fear and greater likelihood of stepping off the plank. Additionally, lucid dream experience and training predicted VL, and related outcomes, across a community sample as well as lucid dream trainees at a meditation retreat center. I discuss the potential validity and utility of VL, its relation to virtual presence, and examples of how it may inform the development and application of VR and related technologies.