Continuity mistake: When the Wicked Witch scares the Scarecrow, Dorothy, and the Tin Man with fire, after the fire is thrown, not only is the Tin Man's funnel cap on backwards, everything is reversed. In order to keep the characters oriented from left to right correctly, they had to show the film from the wrong side, thus the buttons of the Scarecrow's jacket and everything else are on the wrong side. (00:46:40)
Continuity mistake: After the Witch throws a fireball at the Scarecrow in the woods and disappears, Dorothy is holding Toto. But when it cuts to a closeup of her, it looks like her shoulders are extended. When it cuts back to the wide shot, she indeed has her arms around the Scarecrow and Tin Man, even though she never put Toto down. (00:46:55)
Continuity mistake: After the Wicked Witch leaves, the burn spot on the ground where she throws the fire from the roof, disappears. (00:47:25)
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)
Revealing mistake: As they exit the Tin Man's scene singing, "We're off to see the Wizard", a bird stretching its wings is casting a shadow on the painted sound stage wall slightly to the right of the house, which reveals it to be a fake backdrop instead of an open area. (00:47:45)
Other mistake: As they walk through the forest in the shot before Dorothy says, "I don't like this forest" there are some cool digital glitches in the lower left hand corner of the screen which look like a strand of blue Christmas lights blinking on and off. (Restored and re-mastered DVD version only). (00:48:00)
Continuity mistake: As they enter the scene with the Cowardly Lion, the Scarecrow falls and then jumps over a patch of weeds growing in the middle of the Yellow Brick Road. In the next shot he does the exact same thing only about three feet behind the patch of weeds that he jumped over before. (00:48:00)
Continuity mistake: In the first shot of them entering the forest before meeting the Cowardly Lion, Toto is nowhere to be seen. In the next shot he appears walking with them. He disappears again later when we first meet the lion. (00:48:00 - 00:49:10)
Continuity mistake: Before they meet the Cowardly Lion, Dorothy starts to say "Lions and Tigers and Bears" and the axe jumps from the Tin Man's left hand to his right between shots. (00:48:20)
Continuity mistake: While Dorothy, Tin Man, and Scarecrow are walking in the dark and creepy forest, just as Dorothy begins to sing "Lions and Tigers and Bears" in the medium shot, Tin Man is holding up the axe in his left hand. But it cuts to the long shot, and the axe is in Tin Man's right hand between shots. (00:48:40)
Revealing mistake: Soon after Dorothy slaps the Cowardly Lion, she looks as though she is about to laugh out loud. This happens about 10 seconds or so after the slap. She even tries to put Toto in front of her face to cover up her smirking. (00:48:45)
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: At the start of the "lions and tigers and bears, oh my" sequence, Dorothy, the Scarecrow and Tin Man are all standing separately, then the shot cuts and they're suddenly arm in arm. (00:48:45)
Continuity mistake: The Cowardly Lion says, "I'll fight you with one paw tied behind my back, I'll fight you standing on one foot." as he proceeds to put his arm behind his back and lift up his left leg. In the next shot his arm is out in front of him and his leg is on the ground. (00:49:35)
Continuity mistake: As the Cowardly Lion chases him, Toto runs off the Yellow Brick road into the bushes twice. (00:50:15)
Continuity mistake: When Dorothy slaps Lion on the nose for chasing Toto and shouts, "Shame on you!" in the wide shot, we see Dorothy's right arm with no mark on her skin. It then cuts to the medium shots, and there's an inexplicable long, thin blue mark (it's not a loose thread) on Dorothy's arm near her elbow, while she's holding Toto. This blue mark vanishes in the wide shot when she puts Toto down, and Lion begins to sing. (00:50:25)
Revealing mistake: Right after Dorothy slaps the lion, there is a green smudge on her arm. Looks like the witch's makeup. (00:50:35)
Revealing mistake: During the Lion's song of, "If I only had the nerve." You can see the cameraman's shadow pass over Dorothy, the Lion, and then the log on the side of the road. Watch carefully, it comes back. (00:52:18)
Visible crew/equipment: After they meet the cowardly lion and all four go off dancing and singing "We're Off to See the Wizard" a stage light flickers in the upper left background. (00:52:55)
Revealing mistake: Soon after Dorothy, the Tin Man and the Scarecrow meet the Lion for the first time, they dance along the Yellow Brick Road, singing. As they disappear at the back of the set, their shadows can be seen on the backdrop, equally covering the trees and everything in between. DVD showing. (00:53:10)
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.