Choose the correct option to complete the sentence in indirect speech:
Alice said, "Dennis is sleeping now."
Alice said that Dennis _____ then. [Intermediate]

The correct option is D Was sleeping
While changing a speech from direct to indirect, the speech goes one tense back. This is because the person is now narrating an action that happened in the past. Also, adverbs that express time will also change to its past counterpart.
For the given sentence, the verb phrase 'is sleeping' will be changed to its past tense counterpart 'was sleeping' and the adverb 'now' will change to 'then'.
Hence option D is correct.
Options A and C: 'Is being slept' and 'was being slept' are grammatically incorrect. 'To sleep' is an action that can only be conjugated in the active voice. (Unless you're using the form 'was made to sleep')
Option B: 'Is sleeping' is the same tense form, whereas the tense of the verb must change to past in the indirect speech.