Gareth Wynne, who served for 30 years with Staffordshire Police, was arrested in Shrewsbury in September, 2014 and remanded in custody after confiding in a mental health nurse about a nightmare he had.
He was held for nine weeks in HM Prison Birmingham before the case was dropped.
Mr Wynne, who served in Cannock and Codsall, was being treated for post-traumatic stress disorder when he told a mental health nurse about a nightmare in which he killed his ex-wife.
The nurse reported his comments to the police, and eventually Mr Wynne was charged with threats to kill. He was remanded in custody before the case was dropped due to lack of evidence.
Mr Wynne, who was a civilian worker at Wellington police station at the time of his arrest, said he had lost his job as a result of the case, and the ordeal had forced him to move away from Shropshire and start a new life in the south of England.
He said he could scarcely believe that he had been put in prison because of a dream which he had no control over.
Mr Wynne, who was in the force from 1977 to 2007, said he made it clear from the outset that he had no desire to harm anyone, and felt let down by both the police and the nurse who he said had betrayed his trust.
He said he had regularly suffered disturbing dreams since his breakdown, and continued to do so.
"I get quite a few dreams involving violence, in some of them I am harming myself, which I described in great detail to various health people. Then I had the one where I was harming my ex-wife. It was a question of speaking to the nurse to try to stop all these dreams and thoughts going through my head."
Mr Wynne, who is 64, said he insisted during his interview that he had no intention of harming his ex-wife, and a search of his home, computer and mobile phone found no evidence to support the claim.
"Despite my protestations that it was just a dream and lack of any other evidence I was charged with the offence," said Mr Wynne, who spent 13 years as a dog handler.
He said his time in custody was spent on the vulnerable prisoners wing, and added that he lived in constant fear that he would be attacked if his identity as a former police officer was revealed.
The case was dropped in January 2015 when Mr Wynne appeared before Shrewsbury Crown Court and the prosecution offered no evidence.
"I had to leave my job, I knew the officers who dealt with my case, and I have not worked since apart from a bit of weekend work at a boarding kennels," he said.
Mr Wynne, who now lives in Lyndhurst, Hampshire, says the experience has added to his problems, and left him fearful of the police.
"I had to move away because it wasn't good for my mental health, I was scared of the police," he said. "Even when the police helicopter was flying overhead I would freak out."
A spokeswoman for West Mercia Police said: "We are aware of this case and are unable to comment further at this time."
The Crown Prosecution Service added: “We have a duty to keep all cases under review and having considered all the circumstances of the case, the decision was made that the legal test for a prosecution was not met and the case against Mr Wynne was stopped.”