Is referencing another PhD dissertation or Master's thesis a reasonable practice in a Master's thesis?

Yes, you are able to reference their work in your text, as long as you make clear in the bibliography what type of document (master thesis, PhD thesis, Institution) it is.

However, i would not consider it to be ideal if your work critically depends on such references in the sense that a central assumption or starting point in your thesis breaks down if the reference provides false or incomplete results. Particularly in the case of master theses / dissertations it is not generally clear whether and to which extent they are peer-reviewed and what their overall trustworthiness is. With (accepted!) PhD theses things are better, as these normally go through a review process. Furthermore, for PhD theses i would expect that their main points have been published somewhere (conference or journal) and then you clearly should prefer these publications.

This is really an addendum to the two previous answers, but nevertheless it is still answer-worthy IMO.

It is mostly true that with PhD theses, the crux of the stuff is generally published in journals etc. so that those count as more reliable sources (I dare say primary sources). However, it is not necessarily true that this will always be so. For instance, I am aware that at least in Theoretical Physics, University of Bielefeld is an example of an institution where it is not mandatory to have the stuff written in the thesis published. Theses are judged for what they contain and whether or not that represents an original contribution to the subject. I am using this only as an example, the general statement is - it is possible for a PhD thesis to contain original stuff which is otherwise unpublished. And at any rate, it is possible to have stuff written more elaborately than in the published papers (mine is an example). (Occasionally, this might also be because some letters journals have stringent limits on word counts and/or pages, so people shrink stuff there and feed out many more details in the thesis).

Thus, there is no harm in citing a PhD thesis, provided you mention that it is what it is.

If others have completed theses or dissertations related to the topic you are studying, I would definitely cite them. While writing my MA thesis, there were very few peer-reviewed publications available in the particular region I was working in but there were a number of recently completed theses and dissertations. Some of these were excellent and provided great data to support my own arguments, while others were of lower quality and were not cited. As long as you're critical of the content and argument of these documents you should be fine.