The mechanisms underlying hyperarousal, the key symptom of insomnia, have remained elusive, hampering cause-targeted treatment. Recently, restless rapid-eye-movement (REM) sleep emerged as a robust signature of sleep in insomnia. Given the role of REM sleep in emotion regulation, we hypothesized that restless REM sleep could interfere with the overnight resolution of emotional distress, thus contributing to accumulation of arousal. Participants (n = 1,199) completed questionnaires on insomnia severity, hyperarousal, self-conscious emotional distress, and thought-like nocturnal mentation that was validated to be a specific proxy for restless REM sleep (selective fragmentation: R = 0.57, P < 0.001; eye movement density: R = 0.46, P < 0.01) in 32 polysomnographically assessed participants. The experience of distress lasting overnight increased with insomnia severity (β = 0.29, P < 10 −23 ), whereas shortlasting distress did not (β = −0.02, P = 0.41). Insomnia severity was associated with hyperarousal (β = 0.47, P < 10 −63 ) and with the thought-like nocturnal mentation that is specifically associated with restless REM sleep (β = 0.31, P < 10 −26 ). Structural equation modeling showed that 62.4% of the association between these key characteristics of insomnia was mediated specifically by reduced overnight resolution of emotional distress. The model outperformed all alternative mediation pathways. The findings suggest that restless REM sleep reflects a process that interferes with the overnight resolution of distress. Its accumulation may promote the development of chronic hyperarousal, giving clinical relevance to the role of REM sleep in emotion regulation in insomnia, depression, and posttraumatic stress disorder.B oth insomnia and affective disorders are among the most prevalent and burdening health concerns facing our society. Targeted prevention of affective disorders in people at risk, as well as identification of mechanisms of conversion, could be the most viable approach to mitigate their increasing global burden (1). For the prevention of new-onset or recurrent affective disorder, insomnia may be the major risk factor that can be targeted best (2, 3). About 13% of people with insomnia develop major depression disorder (MDD) within a year (2). Moreover, remission rates after cognitive behavioral therapy are 21% lower for depressed patients with abnormal sleep compared with patients with relatively intact sleep (4). It therefore appears highly relevant to understand the mechanisms involved in the role of insomnia in disturbed emotion regulation (2). The present study addresses the roles of restless rapid-eye-movement (REM) sleep (5) and chronic physiological arousal (6), which are characteristic of both insomnia and MDD.Although sleep contributes to the more robust consolidation of emotional memories, relative to neutral memories (7, 8), their later recall is not associated with anywhere near the same magnitude of subjective emotional distress, autonomic arousal, and amygdala activation (7, 9-11). REM sleep p...