Dead Zone is one of the possible challenges (commonly called "handicaps" due to confusion with Challenge Mode) encountered in standard or challenge mode battles. Dead Zone removes all passive abilities from your characters.
Dead Zone only appears in area 7 in single player. It is generally regarded as the hardest of all challenges, but gear can help alleviate its impact. Dead Zone in partly what the Batman/Arkham Origins boss (the final boss of the game excluding the somewhat anti-climax ending of bonus battle 7) is known and feared for.
Dead Zone encourages uses of characters with high base stats; it was one of the few niche uses of Darkseid/Prime.
There are some passives that will work partially in Dead Zone, such as Scorpion/Mortal Kombat X's passive; while his health is not increased, his specials can deal damage over time which will crit as normal.
Red Lantern Hal Jordan's passive will fully work in Dead Zone.