Nightmare Gabby is one of the monsters from Neverending Nightmares. Like the other enemies in the game, contact with this creature will result in instant death.
Nightmare Gabby is seen in-game as an exact copy of Gabrielle Smith as a child, except she has no eyes and her mouth has been slit into a permanent smile, and she is also crying blood, similar to Nightmare Thomas. Her hair is messy and ragged, and the bottom of her dress is spotted with blood. The giant knife that she carries is soaked in blood.
Contact with this enemy will result in her raising the giant knife over her head and slamming it down into Thomas Smith's shoulder, causing a giant gash to form along his side.
Nightmare Gabby appears in Together at Last as the main enemy. Thomas cannot walk past here because she will kill him, so as soon as he sees the sparks emanating from her scraping the knife across the floor, he has to walk away from her until he cannot hear the scraping noises.
To enter the nightmare Final Descent, Thomas has to encounter Nightmare Gabby again in a library and succumb to death by her. The nightmare ends with Thomas grinding his hand in the meat grinder.
Nightmare Gabby appears again in the latter nightmare, this time in light, but Thomas' strategy is the same: walk away from her until she disappears and he can no longer hear her scraping the knife.
Nightmare Gabby may actually be Thomas' dead daughter from one of the endings.
There are multiple reasons to back this up
In the beginning, a little girl is stabbed, Nightmare Gabby is a little girl with a bloody knife for a weapon.
in the special ending, Thomas reads that his wife is leaving him after his inability to get over their daughter's death.