According to band member Michael D'Addario, A Dream Is All We Know is "more whimsical" than their previous album, Everything Harmony. The album features an upbeat tone, but the lyrics address fears of not achieving one's potential and the elusiveness of dreams. Musical styles include power pop in "My Golden Years" and doo-wop in "In the Eyes of the Girl." The D'Addarios cited the Beatles, the Beach Boys, the Association, Sagittarius, and Tages as 1960s pop inspirations for the album. Brian drew inspiration from Roy Wood's mid-1970s albums Boulders and Mustard for his own horn and string arrangements.

A Dream Is All We Know was recorded in the band's small studio in north Brooklyn, utilizing tape and analog effects like spring reverb. Sean Ono Lennon recorded and co-produced "In the Eyes of the Girl" at his upstate New York studio. Ten of the 12 tracks were recorded after Everything Harmony, with "Ember Days" from the previous sessions and "If You and I Are Not Wise" dating back several years.