reality or illusion?

Physical reality is God's Dream.

God is the Master Dreamer.

In our Dreams, in which the dream charactors are aspects of ourselves,or projections of our wishes or fears, we can flow with the dream, unaware we are dreaming. If we become lucid, we realise that all around us is just an extension of ourselves, and our perspective on the Dream changes completely.

Same with reality. If reality is God's Dream, we are his charactors. Every single human, animal, mineral, plant etc is an aspect of God's or the Universal Mind. "Universal Consciousness" refers to us all being interconnected and 'One'. As aspects of God's Dream, this is true. 

When you start viewing yourself, others, and situations as an aspect of a Dream, you become lucid within waking life. For waking life is merely a dream, and "real" dreams are merely dreams within dreams.

I believe the purpose of dreams within the dream is to connect back to the original Dreamer. This creates the true "Circle of Life"

Are your dreams illusions? No. Therefore life is also not an illusion. But life is not "reality" either, as reality is subjective. 

So there can only be a third explanation.

Life is a Dream. The most vivid, fantastic, beautiful, adventurous dream you will ever encounter, if you choose to wake up within this dream.