Seeing lunatics or a mental hospital in your dream may reflect some uncomfortable aspects of your life. Such dreams often indicate situations where you are worried about your personal life or feelings. They can also express your discomfort or stress that lies deep within your mind. If you have this kind of dream, it may be a good idea to reflect on your emotions and seek ways to address them.
From Imam Muhammad Ibn Seerin's Dictionary of Dreams According to Islamic Inner Traditions â entry "Lunatics" (page 260) â resolved via the equivalent "Mental hospital" entry.
In a dream, a mental hospital or an insane asylum represents a bathhouse, or a sauna which is the dwelling of evil spirits, the place of uncovering one's private parts, or showing unpleasant conduct in public. A mental hospital in a dream also represents a training school, caring for children's education, teaching children to behave themselves, a place of learning, a school, a playground, a place of clamor and noise, using vile words, stealing money, or separation from one's family and children. If a deceased person is seen in a mental hospital in a dream, it means that he is dwelling in hell-fire, for a mental hospital sometime uses force with its patients and ties them up, or imprisons them. Ifone sees himself in a mental hospital in a dream, it means that he might go to jail for a crime he committed. Mixing with lunatics and insane people in a dream also means imprisonment and mixing with criminals, or it could mean falling sick, or dying from a terminal illness. If a poor person sees himself inside a mental hospital in a dream, it means financial success, receiving outside help, comfort and joy in his life. (Also see Insanity)
Note: Islamic dream interpretation depends on the dreamer's circumstances and state. This is a general guide drawn directly from the source book.