What causes nightmares in kids?

Stress and anxiety: Nightmares are sleep disruptions that include frightening content and are especially common in early childhood. Often these experiences are influenced by stressors that occur during waking hours. The course and development of nightmares are largely dependent on developmental level and are present throughout childhood (journal of clinical child psychology, 2000).

Nightmares may : occur without preciptating factors, especially in pre-schoolers. Anything that increases emotional arousal, like a traumatic event, scary movie, family conflict or parental anxiety can set them off or increase them. A nice explanation of childhood nightmares & suggestions on handling them is at http://sleepfoundation.org/sleep-disorders-problems/abnormal-sleep-behaviors/nightmares-and-sleep.