Anybody know much about schizophrenia?

That's unrealistic, sorry. Even if he did hallucinate or have delusions, that wouldn't be the same as schizophrenia, which is quite a serious mental health issue. I'd recommend trying to research it more thoroughly before including it as a central plot point in a story.

Thanks for that! Can you please tell me the difference between hallucinations/ delusions and actual schizophrenia?

I am wanting to write a story about a boy that is so obsessed with his dreams that he starts seeing people from his dreams in reality, even though they are not really there.
Is it possible to develop schizophrenia from having an overactive imagination, or can I not write that? Also, since I want it to be a happy ending, he will eventually confront his dream characters and stop hallucinating. Can I do that, or is it too unrealistic?

I don't need anybody to tell me about the symptoms of schizophrenia, since I know about that already.

As someone with lived experience of a related condition (schizoaffective disorder) and who has worked with young people who hear voices, I'd say that it's perfectly possible for someone to develop/have an overactive imagination due to having schizophrenia - but I've never heard of the reverse (someone developing schizophrenia from an overactive imagination), in the way that you describe I'm not entirely sure that's possible/plausible.

What you wrote about confronting the dream characters and the hallucinations then ending is somewhat plausible. There is a study that showed that (young) people's symptoms can stop if a root cause is identified and tackled: https://pubmed.ncbi.nlm.nih.gov/12271794/ .

Is it necessary for the character to have schizophrenia for your story? As I think doing that and then claiming it developed from an overactive imagination could be skating on thin ice. From what you've said so far, the diagnosis/label doesn't seem that crucial to the story? As in, the character could have the symptoms and the experiences and the happy ending, without the word schizophrenia appearing in the story?

Having read the previous comments, might I suggest adapting your story line a little to make it more realistic?
Perhaps start the story by making out that everybody around this kid believes he's living in a fantasy world with imaginary friends etc, but later in the story reveal he actually has schizophrenia.

(I have no knowledge of schizophrenia, but this might make the story more realistic).