Madotsuki (pronounced Ma-do-tsu-ki or Ma-dohts-ki) is the player character in Yume Nikki. Fans speculate that she is young -- anywhere from nine to fourteen years old -- although arguments can be made for any age. Madotsuki is the only character in Yume Nikki with an official name, since characters require a name for the menu screen in RPG Maker games.
As with virtually everything else in the game, Madotsuki's identity and life are a mystery. Only what can be seen in-game can be considered canon. The only thing that is generally accepted among fans is the that Madotsuki is a hikikomori, or shut-in. This is supported by her refusal to leave her room -- if a player attempts to leave, she merely shakes her head.
Madotsuki is a playable character in M.U.G.E.N, and in fan-works, she is commonly portrayed as wielding a knife as in the houchou effect.
Real life
Madotsuki doesn't have much to do in her room. Her television set doesn't receive any channels, so she can only play a single game, NASU. She can go outside on the balcony, but the balcony itself must be rather high, and her view always seems to be blocked by fog.
Madotsuki's dreams
Elements in Madotsuki's dream world seem to hint at her emotional state. Some effects seem to show her unhappiness. The knife, in particular, appears to hint at her misery. However, the player ultimately controls Madotsuki -- it is unknown whether she would use the knife on her own.
Since many dreams are disturbing when shared, Madotsuki may just be a typical lucid dreamer trying to find a release from her sadness by exploiting her dreams for fun and self discovery.
Fan speculation
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Name
The word "Madotsuki" (窓付き) means "window" (as in a box or envelope) or "aperture." The name appears in the menu as the name of the player-character. It is not a word used as a name in Japan - in fact, it may not be the character's true name. It could be thought of as being more a description of the character as the player's window into the dream world rather than a literal name. It could also be a way to preserve the game's theme of loneliness by giving the character a functional, dehumanizing name, rather than a personal name.
Mental illness
It is possible that Madotsuki is depressed, and that her dreams are caused by her medication. (Specifically, she could be experiencing REM rebound.) Depression would explain her images of despair, hopelessness, and end-game tendencies.
Psychic abilities
Due to how varied the dream-world is, it might be possible that she has psychic abilities to wander into other people's dreams. The madness of the dream-world might have driven her insane.
Gender issues
Due to the recurring images of orifices, blood, and a road with womb-like creatures, and the fact that Madotsuki uses both the men's and women's restrooms in her dreams without hesitation, Madotsuki may feel gender troubled. This can be taken in either direction. She could be male to female transgender living as a female or vice-versa. The former theory is supported by KyuuKyuu-Kun, who looks like a phallus followed by a disturbing face in the shape of a penis head, complete with a possible urethra, while the latter possibility is supported by the fact that a trans person would usually live out her life fully as a woman, while Madotsuki has doesn't show an obsession in feminity, the fear of rape induced pregnancy would also only be an issue if one was born a female, so she could be a female who feels male, and KyuuKyuu-Kun and other penis shaped objects may be another image of the assault theory.
Suicide is the leading cause of death among transgenders.
Alternatively, she may just be very well aware that she is dreaming and can do what ever she wants and/or won't encounter anybody in any restroom.
Foreign
Some fans believe that Madotsuki isn't Japanese, but American, English, or other nationality. The creator of the game is Japanese, and Madotsuki's apartment looks Japanese, yet her furniture is Western looking. An example is that the bed she sleeps in is not a typical Japanese bed. All these facts lead many fans to believe that one of the reasons to Madotsuki's shut-in behavior is that she's living in Japan, but is a foreigner. She doesn't know Japanese, and feels isolated from the rest of the world because of this. This theory has been made due to the fact that there's no dialogue in the game, only numbers and sounds. Speech and letters is what defines a language, and Madotsuki tries to distance herself from that.
Trauma
Traffic accident
It is thought that Madotsuki was involved in a traffic accident in her past -- the same accident that Monoko is speculated to have been in. The bloated abdomens found in Madotsuki's dreams may be images of her decapitated and pregnant mother. The severed heads in the monochrome world could be people who died in the accident and may perhaps include Madotsuki's mother and father. Monoe may be a deceased sibling. Madotsuki's ghost could refer to injuries sustained by Madotsuki during the accident; alternatively, its placement in Hell could be a reference to survivor guilt.
The Severed Head effect may be linked to the decapitated mother and father in the front of the vehicle. Stoplight could be linked to the accident happening at a stoplight.
Assault
It is possible that Madotsuki was raped prior to the events of the game.
Her self-imposed exile could be an example of shame and self-blame over the incident; the presence of her "ghost" in Hell could support this. The existence of the phallic KyuuKyuu-Kun monster and the possibly-phallic FACE cutscene (both in close proximity to each other) could represent a fear of re-victimization. Hands and eyes are also common throughout the dream world, possibly referring to both rape and shame.
Various monsters take the form of deformed pregnant women with slashed throats or severed heads, implying a fear of rape-induced pregnancy.
Poniko could be a dream-based replica of Madotsuki prior to the incident in her past. Alternatively, Poniko could be a metaphor for confidence and happiness that were replaced by helpnessless (Uboa) during a random incident that happened in the dark. Or Panoko was really a man and raped Madotsuki.
Suicide is more likely among rape victims.