Hello, a parent educator here. This is very tough to solve, it will pass but it takes time and patience. Here are a few clues to help. Unless this is a true power struggle, which it doesn't sound like at all, then crying it out won't work, it will make it worse.
The fear your child is experiencing is part of a developmental stage that occurs at this age. At 3 the brain becomes aware of fantasy and imagination. As parents we love this stage and we begin sharing movies with them. However, from a wee one's perspective the movies can be seen as really scary. Now the branch outside the window becomes the claw. So 1st, watch the types of movies and stories you share, look at it from your child's perspective first before turning the TV on. Example: So many parents like High School Musical, but it also shares how older children talk and behave, not a good idea for a four year old!
2nd. I did what several moms suggested and created a bed on the floor for my little guy. I had one child who at this age was dealing with power struggles, control and sleep, and I had one child who was truly afraid. The interesting thing about having gone through this process, my children are grown, is I can look back and see what really served them and what really didn't serve them. My second was always afraid. There was nothing I could do to talk him out of it or redirect him out of it or change this about him. It became a fact of life, he was a scared little one UNTIL he went through the entire process and learned how to manage things for himself, and then he became fearless. I wasn't in charge of how long it took him to feel ready, all I could do was empower him to keep trying and support him when and if he failed. So we had him come in silently when he woke up in the middle of the night and sleep in a bed on the floor, which allowed all of us to sleep. And when he was ready and older, he moved back to his room. I made it a safe space, but not an entirely comfortable space. I always wanted his bed to be more comfortable than the floor. I love the idea of the dog sleeping with him. The dog will not only make him comfortable but will also alert you if he ever needs you.
Here is another trick. When putting a child to sleep in his own bed try patting the mattress, not the child. This movement creates the same soothing feeling but allows the child to learn how to put himself to sleep by finding his own self-soothing clues. If your child is in a crib, then get down on your knees so you can be at his eye level as you pat the mattress and do not make eye contact. Being at his eye level means he doesn't need to stand up or look up to see if you are still there. This helps him relax and fall asleep himself eventually.
Also, make sure that the environment he falls asleep in is the same one he will wake in. If you allow a child to fall asleep on the sofa with TV noise and he wakes to total quiet then he will pull himself up to a waking state and try to find you. If you can have him fall asleep in his room with whatever light and similar noise you’d have when he wakes, then he can roll over and go back to deep sleep.
Try using a CD of white noise, and if he wakes in the middle of the night use a remote control to start the CD of white noise again. Routine is key, it helps the child realize all is well and all is the same, it’s okay to go back to sleep. Try Gerber’s lavender bath and a 1/4 cup of table salt in the bath. The lavender is very calming and creates sleepiness and the salt leaches any tension out of his growing muscles, just like Epsom salts does for hurt muscles. Try making bedtime very quiet, lower the lights and reduce activity. All of that may help you start the process in his bed from now on, and none of it may work. I told you this was a tough one.
I know these suggestions are not perfect, that's because each child and each family is different and sleep or lack there of in early childhood is the great equalizer, it happens to all families. How you deal with it is a learning process for both parent and child.
I hope this helps in some small way. There are lots of other wonderful suggestions like this at ProActive Parenting. Come for a visit and sign up for the newsletter, go to www.proactiveparenting.net.
Happy Thanksgiving To all who are reading!