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The Nightmare Levels was released on August 1, 1999 as an expansion pack for Blood II that provided background information on The Chosen. Caleb, Gabriella, Ishmael, and Ophelia, with the game being narrated by a deceased Gideon. As The Chosen continue to walk home to their world from the invading reality, they encounter a psychic beast known as the Nightmare that captures Caleb due to the Chosen attracting it by telling scary stories.

 
The player then has to relive some of the most horrific moments of the Chosen's lives - Caleb fighting the Cabal in the frozen north, the Cabal attack on Ophelia's sorority which led her to join, Ishmael's escape from his life as a circus freak into the Cabal, and Gabriella's spooky night in a haunted mansion

Caleb pops in at the end of each of the other Chosen's stories, and tries to figure out what is going on. After Gabriella's nightmare, he is transported to a level resembling the old west, in which he escapes back out into the otherworld. There he finds the Nightmare, surmises that it is the being responsible for his troubles, and slays it. Gideon finishes with an end narration, foretelling the Chosen's many adventures and conquests ahead of them.

The Nightmare Levels reintroduced the Robed Cultist enemies from the the first game and adds the Gremlins enemies and the Nightmare boss, CabalCo cultists re-skinned as killer clown guards, and two new weapons - the combat shotgun and the flayer. The game also added new multiplayer models (CabalCo cultists, Soul Drudges, etc) and modes (such as "Zombie Head Soccer"). Most of these features were created during the development of Blood II: The Chosen but never made it into the final project until the release of the add-on

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