Teddy suffers several migraines over the course of the film, which cause him to have strange dreams in which his dead wife Dolores appears. Cawley's performance means that every employee and patient must play a role in Teddy's fantasy, a plot device that Cawley invokes early in the film when he mentions that Rachel Solando's delusions have taken on an elaborate 'fictional structure.' Teddy's paranoid feelings are in a way valid, given that everyone around him is conspiring to help him break through his psychosis and recover the memory of his previous trauma.

Cawley essentially 'directs' every move that the doctors, wardens, and patients make over the two days during which the film unfolds. Shutter Island is, among other things, a meditation on the therapeutic powers of performance and performative role-play. Scorsese implicates the viewer in Teddy's madness by grounding the film's perspective almost entirely within his delusional mind. Teddy's madness is linked not only to the circumstances of his family's deaths, but also to his military service in World War II, during which he witnessed the horrors of Nazi death camps. Teddy's line at the end of the film-'Is it better to live as a monster or die as a good man?'-suggests that death might be preferable to the kind of 'mad' existence that Teddy inhabits after the traumatic events he has endured. The protagonist Teddy Daniels is trapped in a delusion for nearly the entire film, only able to acknowledge the reality of his past for mere moments before regressing back into his delusional world.

Madness is central to the plot of Shutter Island, a film that takes place entirely at a mental hospital.

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