Small island close to Shute Harbour and easily accessible to day trippers. Geologically the Whitsunday Islands are all drowned mountains. Prior to the last Ice Age they were connected to the mainland and would have all been prominent mountains in the area. The melting of the polar caps drowned the valleys between the mountains creating a network of 74 islands of which only 7 have resort facilities. Beyond the resorts the whole area is part of the Great Barrier Reef Marine Park and the uninhabited islands are all controlled by National Parks and Wildlife.

The first European to explore the area was Captain James Cook who travelled through the area on his journey up the eastern coast of Australia in 1770. He passed through Whitsunday passage, a narrow channel which lies between the mainland coast, South Molle and Daydream Islands to the west and Dent, Whitsunday, Hook and Hayman Islands to the east, on Sunday 4 June which happened to be Whit Sunday (the seventh Sunday after Easter) - hence the name of the area.

Originally known as West Molle Island, Daydream became a resort around 1933 when it was purchased by retired army major Paddy Murray and his wife. In 1947 the island was purchased by Sir Reginald Ansett. He closed the resort in 1953, dismantled the buildings and moved the equipment. Daydream was closed until 1967 when it was sold to a Gold Coast entrepreneur who re-established the resort.

In recent times Daydream has moved from a very child-orientated destination to a more general tourism orientation. It is now designed to appeal to the general market being a suitable destination for conferences, weddings and the general leisure market for all ages. There is still a child care facility available.