The beginning months of 1986 were filled with various concert dates in and around the New York City area. During this time, the band recorded a collection of demos, titled The Majesty Demos. The initial run of 1,000 sold out within six months, and dubbed copies of the cassette became popular within the progressive metal scene. The Majesty Demos are still available in their original tape format today, despite being released officially on CD, through Mike Portnoy's YtseJam Records.

In November 1986, after a few months of writing and performing together, Chris Collins was fired. After a year of trying to find a replacement, Charlie Dominici, who was far older and more experienced than anyone else in the band, successfully auditioned for the group. With the stability that Dominici's appointment brought to Majesty, they began to increase the number of shows played in the New York City area, gaining a considerable amount of exposure.

Shortly after hiring Dominici, a Las Vegas group also named Majesty threatened legal action for intellectual property infringement related to the use of their name, so the band was forced to adopt a new moniker. Various possibilities were proposed and tested, among them Glasser, Magus, and M1, which were all rejected, though the band did go as Glasser for about a week, though fans reacted poorly to this decision. Eventually, Portnoy's father suggested the name Dream Theater, the name of a small theater in Monterey, California, and the name stuck.

With their new name and band stability, Dream Theater concentrated on writing more material while playing more concerts in New York and in neighboring states. This eventually attracted the attention of Mechanic Records, a division of MCA. Dream Theater signed their first record contract with Mechanic on June 23, 1988 and set out to record their debut album. The band recorded the album at Kajem Victory Studios in Gladwyne, Pennsylvania. Recording the basic tracks took about 10 days, and the entire album was completed in about 3 weeks.

When Dream and Day Unite was released in 1989 to far less fanfare than the band had anticipated. Mechanic ended up breaking the majority of the financial promises they had made to Dream Theater prior to signing their contract, so the band was restricted to playing around New York City. The promotional tour for the album consisted of just five concerts, all of which were relatively local. Their first show was at Sundance in Bay Shore, New York opening for the classic rock power trio Zebra.

After the fourth show, Charlie Dominici was let go because the band was starting to feel the limitations of his voice based upon the vocal style they wanted. The band was looking for more of a Bruce Dickinson/Geoff Tate type of singer, and his stage presence was not what they wanted for a front man. Shortly after, however, the band Marillion asked Dream Theater to open for them at a gig at the Ritz in New York, so Dominici was given the opportunity to perform one last time. It would be another two years before Dream Theater had a replacement vocalist.