This chapter describes the stages of sleep and dreaming and relates them to the neural pathways involved. The acetylcholine system, the reticular nucleus, and the sensory thalamus are the principal factors. Two interacting processes regulate the sleep-wake cycle: the circadian process and the homeostatic or recovery process. Suboptimal sleep results in a drive to longer hours and deeper sleep. Both of these processes are altered in someone experiencing depression. As many as 70% of people with depression have sleep disturbances. Primary disturbances include problems falling asleep, frequently awakening, waking sooner than desired, lack of restorative sleep, pavor nocturnus, nightmares, and hypersomnia. Some pharmacotherapeutics prescribed for depression increase insomnia. We will discuss epidemiological and biologic findings about insomnia as a clinical predictor of subsequent depression.