Revealing mistake: When the group is waiting to see the Wizard, the Lion sings the "If I Were King" song. The Tin Man grabs a flower pot and breaks it to make a crown. When the crown falls off the Lion's head later, it bounces around like plastic. (01:07:20)
Continuity mistake: Immediately after Dorothy throws the water onto the witch, there is a long shot of the group as they observe the Wicked Witch beginning to melt. In this shot you can see that the Scarecrow's arm is still on fire, yet nothing is done about it as they all focus on the Witch. In the next full shot of the Scarecrow the fire is completely out. (01:26:20)
Revealing mistake: If you listen closely, during the singing of "We're Off To See The Wizard" by Dorothy, the Scarecrow and the Tin Man, you can recognise Buddy Ebsen's gravelly voice. He was the original Tin Man, but had a reaction to the makeup. They had already recorded the songs and it was too expensive to re-do it. (This film was WAY over budget and they couldn't waste time and money re-recording songs) (00:47:30)
Audio problem: When Dorothy, Scarecrow and Tin Man are in the forest where they find Lion, the first time Dorothy says "Lions and tigers and bears, oh my," her mouth doesn't move at first. When the camera cuts to the next shot, her mouth finishes the phrase. (00:48:45)
Continuity mistake: The Wicked Witch leaves Dorothy and runs to grab the hourglass. The mortar and pestle on the left of the hourglass disappear between shots. (01:17:50)
Other mistake: When entering the Haunted Forest, the Scarecrow is carrying a pistol and a stick, the Lion has a bug sprayer and net, the Tin Man has a monkey wrench and his axe. But different scenes after that shows some items missing and then returning. I guess in the "Jitterbug" scene that was cut, they lost all those things but the axe. (01:13:15 - 01:16:00)
Revealing mistake: When the foursome are granted permission to see the Wizard, they get up, link arms and proceed up the steps. You can see the wire that holds up the Lion's tail get caught in front of the Scarecrow's arm. He then lets it loose very carefully by unlinking his arm. (01:08:30)
Continuity mistake: In the scene where Dorothy and the Lion are asleep in the poppy field as the snow is falling, there is at least one if not two close-up shots of Dorothy's face showing no snow falling around her at all. (00:56:35)
Continuity mistake: Dorothy's hair is long and almost straight in some shots and short and curly when the camera pans back to her. This happens throughout the movie.
Continuity mistake: The blue shirted Lollipop Guilder comes from around the fallen house at the beginning of "Come Out Come Out," but he immediately appears emerging from a jet black manhole (with a black lip where the cover goes) in middle of the yellow brick in front of the house. (00:23:15)
Other mistake: When the Wicked Witch is giving the orders to the Nikko, the Head Winged Monkey, it shows his troops flying away before he's even finished receiving his orders. (01:14:40)
Continuity mistake: The pole that the Scarecrow was on moves out in front of the corn at the end of the scene as Dorothy and the Scarecrow run off and sing, "We're off to see the Wizard". (00:38:50)
Revealing mistake: When the Tin Man breaks the flower pot for the Lion in the palace you can see the lines that it is supposed to break on. (01:00:55)
Continuity mistake: At the end when the Wizard and Dorothy are in the balloon basket, the tie down ropes on the right side keep going from tied to untied and back to tied again through different shots. (01:34:55)
Continuity mistake: After both Dorothy and Scarecrow have oiled Tin Man's elbows, Dorothy pulls the Tin Man's arm down and we see her throw the apple that she's holding down behind him. In the next shot it reappears in her left hand. (00:41:55)
Continuity mistake: In the scene where the Wicked Witch in Munchkinland goes over to observe the ruby slippers on her dead sister's feet, when she is up close there's not much space between her and the slippers but when she turns around and says "they're gone," she's further away, then she's closer again in the next shot.
Other mistake: Toto is listed in the end credits as being played by Toto, when he was actually played by a dog named Terry. A few years after the film was released, Terry's owner/trainer, Carl Spitz, changed the dog's name to Toto due to the popularity of the film, but the credit is wrong for the time.
Continuity mistake: When Dorothy is at the end of the movie confronting the Wizard about going home, since she killed the Witch, Toto goes over to the curtain and you can see him tied up to it as he opens it. Dorothy then goes over there and automatically has him in her arms - she didn't even need to bend down and pick Toto up. (01:28:55)
Continuity mistake: In the scene where the Wizard is about to bestow 'awards', the Scarecrow is lined up second from the left as the Wizard begins to speak. In the next shot while the Wizard is still speaking, the Scarecrow 'jumps' to the far right. (01:29:10)
Continuity mistake: Dorothy throws water at the Wicked Witch not knowing it will melt her. If you look closely the witch is drenched when it hits her but in the next close up shot she doesn't have a drop of water on her. (01:26:20)
Answer: In the film it's left ambiguous. At the end it's strongly implied that she was dreaming. The characters she meets all look like people she actually knows. In the original book, she actually went to Oz.