Definition: The" imaginary audience" is a label for teens' and older tweens' belief that a group of followers exist who constantly watch and judge their every move. The belief arises from the larger concept of adolescent egocentrism. An egocentric adolescents believes that wherever he goes, everyone around him is as interested in him as he is in himself. He also believes his "audience" is continually commenting on his actions and appearance. It's like being a celebrity...except no one is actually watching.
The mood of the "audience" varies with the adolescent's mood. When the tween or teen is feeling self-critical, she thinks that others will be highly judgmental of her behavior and appearance. When she is in a self-adoring mood, she thinks that others will be equally wrapped up in her beauty, grace and magnetic personality.
Adolescents' belief in the imaginary audience explains some of their moodiness. Even private moments feel public to them. This is why teens and older tweens frequently become embarrassed over minor events. For instance, if dad makes a silly joke in a restaurant, it doesn't matter to the adolescent that no one around them seemed to be listening, everyone will still (somehow) know.
Elkind, PhD, David. Egocentrism in Adolescence. Child Development. 1967. 38: 1025-1034.