You dont have to, but most kids do for the story bookforest part. A lot of parents ditch the costume when you are in the rest of the park.
No costume required but non-scary costumes are a fun way to get into the "spirit" of the day. Keep in mind this is a family friendly event and you don't want to frighten the kids. Also, don't wear costumes that could get caught in the ride doors, handles and other contraptions.
You can if you want to, but not required.
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