Mad Dreamer

If the reason that humans don't deal with Creative Sterility is that Humanity Is Insane, then this character is just that extra bit more insane than the rest of humanity. They not only make up fantastic art and stories, they then live them. Expect them to be the odd ones out in any kind of group, since they're the only ones talking about the adventures they had last night hunting dragons. However, rather than be held in lower esteem for being unable to take reality (or cope with the way that society creates it), they are held in higher esteem within the work for the imagination and vivacity (for these characters are almost always very energetic and emotional) with which they live life.

In a way, this is the artistic counterpart to Science-Related Memetic Disorder and The Spark of Genius. It is the ethos behind the Blithe Spirit and the Manic Pixie Dream Girl. It's often a very frequent trait of The Ophelia. However, whereas The Ophelia stresses the beauty of the insane girl with less focus on the content of the insanity, this trope focuses on the beauty within the insanity.

In this way, these characters are portrayed very differently from those with Napoleon Delusions. People with Napoleon Delusions tend to pretend that they are actual historical figures, or at least fictional characters that other people created. Mad Dreamers, on the other hand, are perfectly clear about who they are - it's their situations where they differ. Part of the reason for the more sympathetic and idealized portrayal of Mad Dreamers may be due to more usage of the character's own imagination, rather than latching onto something that already exists. In other words, authors, who make things up for a job, may be better able to relate to the Mad Dreamer. They are frequently excellent World Builders.

Figuring out which characters qualify for this trope can be very difficult on occasion, particularly when the character is on the more insane side of the spectrum. This is because the series that enjoy using this trope tend to be heavily influenced by Post Modernism and will tend to play around with whether the character can in fact say I Reject Your Reality. These stories will often use the narrative style in order to suggest that the character is also a Reality Warper. Beware in that case, because things will get really crazy really fast. There may be some overlap with Mad God in this variety. On the other hand, a few of the "less" insane examples are more likely to have overlap with Mr. Imagination and Longing for Fictionland.

If the Mad Dreamer has had some form of Dark and Troubled Past, they may use this fantasy as a form of Happy Place to escape the pain. Of course, taken to extremes will result in a Tragic Dream.

These characters may often wind up being Too Good for This Sinful Earth when reality manages to beat them down after all.

Compare Longing for Fictionland, which may overlap with some less extreme cases of the trope; the Cloudcuckoolander, who is this trope Played for Laughs; I Reject Your Reality, which is how other characters may see them; and the Strange Girl, who actually goes on these sorts of fantastic adventures. Daydream Believer describes groups of people who harbor similar beliefs (but usually regarding fiction that someone else wrote) in real life.

Examples of Mad Dreamer include:

Anime and Manga

In Umineko no Naku Koro ni, many of the witches may qualify for this, but Marriage Sorcierre was created with precisely the intention of being a haven for these. As such, Beatrice (and by extension Clair and Shannon), Maria and Ange (at least, before she rejected magic) are the most straightforward examples.
Martina does this in Slayers with her over the top theatrics and showy displays of devotion to her dark lord, Zomagustar; and firmly believes she draws her power from him. The scary part? Zomagustar doesn't exist, Martina made him up! Despite this, she succeeds in casting a curse on Lina (that actually works!), because her belief in him is THAT strong. And, yes, she IS that crazy!

Film

Baby Doll from Sucker Punch
This trope is the essence of the main character in The Secret Life Of Walter Mitty, a 1941 short story by James Thurber, and a 1947 movie version starring Danny Kaye. For a few decades after this film came out - from the 1950s to the early 1970s, even - "Walter Mitty" was a shorthand for this trope in everyday life. To call someone a Walter Mitty meant they were made of this trope.
In Neverwas, Gabriel Finch (Ian McKellen) has a beautiful made-up world of knights and high sorcery that he knows is false, but which he uses to deal with the trauma's he's faced.

Literature

Anne of Green Gables skirts close to the trope and sometimes falls prey to it. (The forest incident comes to mind) She grows more grounded as she grows up.
Stargirl, from the eponymously named book, has some definite moments of this.
Don Quixote might be considered the Ur Example. Ironically, it wasn't even the intention of Cervantes, who was hoping to make fun of the ideas for which Quixote fell head over heels, but thanks to Misaimed Fandom, he became very commonly portrayed as this, instead of the Lord Error-Prone that was intended.
- Don Quixote itself is an Unbuilt Trope because, in its attempt to correct the Misaimed Fandom, Cervantes explores all the ramifications of this trope: Don Quixote knows he is just a Impoverished Patrician, he really wants to be an Knight Errant, but few know what are those and even less care. Whenever Reality Ensues, he insists A Wizard Did It. Lord Error-Prone is safe because he rejects the reality of everyone and substitutes his own. The second part show us a lot of people – Nobles, bandits, soldiers – organizing Massive Multiplayer Scam that convince Don Quixote he really is an Knight Errant… because they want to mock him. The Only Sane Man calls Don Quixote a fool for making all the others be as mad as he. Only when the novel finishes, Don Quixote realizes that, even when he lived the live of a Knight Errant exactly as the Chivalric Romance books said, he didn’t do any good to anyone. So those books were lies. The Fan Disillusionment is so great, he dies.
Luna Lovegood of Harry Potter although given that she lives in a magic world, she may not be so crazy as she sounds.
Quentin Coldwater, from The Magicians. Of course, this quality of his is subverted at least once (i.e. his mad dream turns out to not only be true, but to in fact be something of a nightmare).

Live Action TV

In one episode of Buffy the Vampire Slayer, a demon made Buffy think that she's not really a Slayer, she's a girl in an insane asylum who has delusions of being a Slayer, Sunnydale, her friends, etc. According to the doctor at the hospital, she must kill her True Companions in the fictional world in order to return to the real world. She decides that the world where she's a slayer is the real world and the other is a fictional construct. The Stinger of the episode suggests that she really is a girl in a mental hospital.

Music

The girl who is the subject of Lonestar's song "Unusually Unusual".