Purpose We aimed to assess sleep quality and psychological distress among healthcare workers (HCWs) in the context of mitigated governmental restrictions during COVID-19 pandemic in Saudi Arabia. Methods This cross-sectional study included 370 HCWs from a single tertiary healthcare institution in Riyadh, Saudi Arabia. Sleep quality and psychological distress were measured using the Pittsburgh Sleep Quality Index (PSQI) and the Depression, Anxiety and Stress Scale – 21 (DASS-21). Results The median stress score for HCWs aged between 20 and 29 years was higher compared to HCWs aged between 30 and 39 years (p=0.002) and HCWs aged between 50 and 59 years (p<0.001). The median anxiety score of the age group between 20 and 29 years was also significantly higher compared to the age groups between 40 and 49 and 50–59 years (all p<0.05). HCWs living with family showed higher anxiety and depression scores compared to those living with non-family members (p=0.006 and p=0.005, respectively). Handling COVID-19 patients on multiple occasions during routine patient care was significantly associated with higher anxiety and depression scores among HCWs. The results also showed higher PSQI scores among younger HCWs (20–29 years) and trainees (all p<0.05). In addition, PSQI correlate significantly with depression ( r =0.268) and anxiety ( r =0.278) scores of DASS-21 scale (all p<0.001). Conclusion Poor psychological well-being and sleep quality were observed among certain groups of HCWs, even after the mitigation of COVID-19 restrictions. This study highlights the need for strategies to manage HCWs at risk of developing psychological distress during future catastrophes.