Third Person (Omniscient)
The narrator in The Lathe of Heaven is like a chameleon. We have a third-person narrator, but sometimes this narrator gets so close to the main characters that it almost seems like we're dealing with a first-person narrator. At these times, we get to see into the thoughts of Dr. Haber, Heather, and George. We learn how they really feel about each other, we learn all about their unspoken fears, and we find out all kinds of secret stuff about each of them.
Take this quote about Heather: "Why hadn't she been a detective instead of a goddam stupid third-class civil rights lawyer? She hated the law. It took an aggressive, assertive personality. She didn't have it. She had a sneaky, sly, shy, squamous personality. She had French diseases of the soul" (7.21). Heather herself isn't talking, but the narrator makes us feel as if we are right inside her head. Talking about a "squamous personality," and "French diseases of the soul" is very specific to Heather's character. This couldn't be Dr. Haber or George, right? This has got to be Heather.
By getting so close to her characters, Ursula Le Guin gives us a story that seems full even though it only has three main characters in it. We get to know them and their world so well that we don't mind when certain things are not explained or when we don't get to see the worldwide reaction to things like an alien invasion. Instead, we get just the right mix of the personal and objective to feel invested in the story.