Hallucinating + [preposition]

Solution 1:

You certainly can follow hallucinating with a preposition, but I don't think any well describes the relationship between the hallucinations and the wallpaper in that story.

She was hallucinating a woman in the wallpaper.

She was having hallucinations, projected on to the wallpaper.

The wallpaper became the focus of her hallucinations.

I would all be happy with.

She saw hallucinations in the wallpaper.

I would also be happy with.

I'm inclined to the first, but that's partly because I think the fact that the hallucination was of a woman is itself significant in my reading of that story. You may disagree, or it may be irrelevant to your piece.

Solution 2:

An alternative would be to say:

"She hallucinated moving images in the patterns or designs of the wallpaper."

OR

"She hallucinated snakes and other moving images in the wallpaper's pattern or design."