Flag the dream sequence in the surrounding story by showing the character falling asleep beforehand or waking up and realizing the scene was a dream afterward.
Place whitespace or a section divider before and after the dream sequence to set it off and signal clear boundaries where it starts and finishes.
Italicize the dream sequence, unless the reader is not meant to discover that it is a dream until later. Depending on the formatting style of your book, you may want to increase the margins and consider using full justification for the duration of the dream sequence, like the formatting for a block quote.
Write dream sequences in the present tense. This convention conveys the immediacy of a dream, while also providing a distinctive tonal boundary between the dream sequence and the rest of the story.