Estimates suggest that up to half of waking life is spent daydreaming; that is, engaged in thought that is independent of, and unrelated to, one’s current task. Emerging research indicates that daydreams are predominately social suggesting that daydreams may serve socio-emotional functions. Here we explore the functional role of social daydreaming for socio-emotional adjustment during an important and stressful life transition (the transition to university) using experience-sampling with 103 participants over 28 days. Over time, social daydreams increased in their positive characteristics and positive emotional outcomes; specifically, participants reported that their daydreams made them feel more socially connected and less lonely, and that the content of their daydreams became less fanciful and involved higher quality relationships. These characteristics then predicted less loneliness at the end of the study, which, in turn was associated with greater social adaptation to university. Feelings of connection resulting from social daydreams were also associated with less emotional inertia in participants who reported being less socially adapted to university. Findings indicate that social daydreaming is functional for promoting socio-emotional adjustment to an important life event. We highlight the need to consider the social content of stimulus-independent cognitions, their characteristics, and patterns of change, to specify how social thoughts enable socio-emotional adaptation.