City of Nightmares by Rebecca Schaeffer

Gotham meets Strange the Dreamer in this thrilling young adult fantasy about a cowardly girl who finds herself at the center of a criminal syndicate conspiracy, in a city where crooked politicians and sinister cults reign and dreaming means waking up as your worst nightmare.
Ever since her sister became a man-eating spider and slaughtered her way through town, nineteen-year-old Ness has been terrified—terrified of some other Nightmare murdering her, and terrified of ending up like her sister. Because in Newham, the city that never sleeps, dreaming means waking up as your worst fear.
Whether that means becoming a Nightmare that's monstrous only in appearance, to transforming into a twisted, unrecognizable creature that terrorizes the city, no one is safe. Ness will do anything to avoid becoming another victim, even if that means lying low among the Friends of the Restful Soul, a questionable organization that may or may not be a cult.
But...