"The Masque of the Red Death" can be interpreted as the chaotic thoughts of a madman, with all characters being creations of his unstable mind. As G. R. Thompson notes, Poe was known as "the master of the interior monologue of a profoundly disturbed mind." If this narrative represents the "interior monologue" of the unhinged Prince Prospero, then the storyteller is likely Prince Prospero himself. The narrator subtly suggests the Prince's potential insanity by stating that "there are some who would have thought him mad," yet he distances himself from this view by adding that "his followers felt that he was not" insane.

If the entire story is the product of one man's deranged imagination, then the guests are not actual individuals but rather figures in his personal psychological drama. The attendees at the masquerade are described as "a multitude of dreams" and even as "fantasms." In this context, the "masqueraders" at the event are merely projections of the narrator, much like characters in dreams are projections of the dreamer. The Prince himself dresses his guests, as "it was his own guiding taste which had given character to the masqueraders." The unique costumes are described as "delirious fancies such as a madman fashions." Essentially, the deranged Prince designed the costumes based on his own "delirious fancies" or hallucinations. If the Prince's guests are manifestations of his insane imagination, it follows that they are eventually called "mad revelers." Even the masked figure of the Red Death is portrayed as adopting "mad assumptions."