Happy Town is a psychedelic looking area within the game. This area contains many strange looking monuments and abstract shapes. Many of these objects can lean a dream toward being an "upper" or "downer dream" (see textures ). Several shapes and monuments are linked to specific other areas, both inside and outside of Happy Town. A small octagonal castle is located in its centre lead to by a path lined with trumpeters. A train track also winds throughout the area, complete with a functioning train and train tunnel. There are small mazes with knee-high walls. The textures in this area are unusual as they change less than other areas. Each texture in Happy Town makes a unique footstep noise while walking.
- There are several hidden messages written on the ground, many of the tiles are lined up to spell the words HAPPY, SKY, SEX and LSD.
- Some players have reported that The Gray Man appears more often here.
- When exploring Happy Town, various objects can appear right in front of the player without warning, which can be surprising.
- Happy Town is one of the main locations connected to the Natural World via the tunnels.
- When looking at the walls of Happy Town in the Natural World, they appear white and metallic like, much like how they appear on the inside when the Kanji (Logic) textures are active.
- Happy Town is always capitalized in the game's documentation.