In chapter five, the color green represents both Gatsby's dream and the tarnishing of that dream. Gatsby has been for a long time gazing with longing at the green light across the bay at the edge of Daisy's dock, which has to him until this day symbolized his desire to reunite with her.
In chapter five, Gatsby and Daisy, having met again for the first time in five years, tour his huge house. He tells her, as they gaze across the bay:
You always have a green light that burns all night at the end of your dock.
Nick notes that
the colossal significance of that light had now vanished forever . . . . Now it was again a green light on a dock. His count of enchanted objects had diminished by one.
Thus, in chapter five, Fitzgerald begins to explores the consequence of realizing a "colossal" dream, which is that it can't help but diminish in reality. As Nick states,
There must have been moments even that afternoon when Daisy tumbled short of his dreams—not through her own fault but because of the colossal vitality of his illusion. It had gone beyond her, beyond everything.
In this way, the green light at the end of the dock and the oversized dream it represents becomes like the oversized American Dream experienced by the first settlers seeing the "green breast" of the new world and in this new land, the dream of the return to paradise. The green freshness of dreams is both an animating, creative force and doomed to diminish as dream becomes reality.