The Mandalorian's season 1 finale, Din Djarin, Cara Dune and Greef Karga are pinned down in a crumbling building by a battalion of Stormtroopers led by the villainous Moff Gideon. Discussing their strategy, Dune expresses her terror at the prospect of being subjected to one of the Empire's Mind Flayers, evidently some kind of torture device used to extract information from of the Rebel Alliance. Strangely, Karga believes that the Flayers aren't real, and were merely "wartime propaganda" spread by the Empire to dissuade any would-be rebels.
The term "Mind Flayer" will, of course, be familiar to fans of Netflix's Stranger Things. Introduced in season 2, the Mind Flayer is the chief monster of the Upside Down that corrupts and controls those it comes into with, forever seeking to spread its influence into the real world. The Mind Flayer is overpowered by Eleven in the Stranger Things season 2 finale but returns, in a fashion, for season 3, where a leftover piece of the monster maintains the link between Hawkins and the Upside Down, allowing the Flayer to take over Billy Hargrove and once again try and force its way free of the Upside Down. Though it's once again defeated, the Mind Flayer remains a villainous presence and a source of mystery.
The association of this shadowy creature with Stranger Things makes The Mandalorian's Mind Flayer reference somewhat strange, especially since there's no species of the same name within established Star Wars mythology. While The Mandalorian is packed with Star Wars Easter eggs, the Mind Flayer is more of a general nod to the fantasy genre and the tropes contained within, rather than a direct callback to the franchise's own history or a shout-out to Stranger Things.
The Mind Flayer of Stranger Things was itself directly inspired by the Mind Flayers actually exist, suggesting that the creature might be far-fetched even for the galaxy far, far away.
There more not be a direct Mind Flayer parallel in the established Star Wars canon, but there are some pretty close equivalents. Rogue One: A Star Wars Story introduces the Mairan race, one of which is used by Saw Gerrera to interrogate Bodhi Rook. The Mairans are said to be able to "feel thoughts" and have a Cthulhu-esque appearance similar to the Dungeons & Dragons Mind Flayer. This kind of treatment seems to be exactly what Cara Dune was afraid of, so perhaps "Mind Flayer" is a colloquial term for Mairan in the Star Wars world. Of course, there's nothing in The Mandalorian to suggest the Star Wars Mind Flayer is a living thing, and it could just as easily be a droid or machine. Despite the various connotations involved, however, it's inevitable that the line will conjure up images of the garish neon 1980s shopping malls of Stranger Things for most viewers.
The Mandalorian season 2 premieres in Fall 2020 on Disney+.