To some extent yes, but it's likely way more complicated than that. But, yeah, without sensory input we start hallucinating. It's like asking your senses repeatedly "is that real" and the senses always say yes, rather than no. So you drift off into whatever because that's real and therefore there's this other things too.
It's a bit like that old parlor game where you tell somebody that you're going to have them ask questions about a dream, send them in the other room, asking for dream volunteers, and then tell the people still in the room that the answer is yes if the last letter of the last word of the question ends A-M and no if the last letter of the last word of the question ends N-Z. -- They inevitably guess a dream involving all manner of perverted stuff as the crowd confirms and rejects bits at random. Inventing a dream out of his own head rather than somebody else's head.
There's also every day hallucinations like seeing detail where it doesn't exist, movement where it doesn't exist, and hallucinating something to fill the big blind spot in our eyes.