Electrical sources of auditory event-related potentials (ERPs) determined by means of low-resolution brain electromagnetic tomography (LORETA) in 48 unmedicated insomniac postmenopausal patients aged between 46 and 67 years were compared with those obtained in 48 age-matched normal female controls. Subsequently, the patients were included in a double-blind, placebo-controlled, comparative, randomized 3-arm trial phase – Climodien 2/3 [estradiol valerate (EV) 2 mg + the progestin dienogest 3 mg] was compared with EV 2 mg and placebo – followed by an open-label phase in which all of them received Climodien 2/2 (EV 2 mg + dienogest 2 mg). The double-blind and the open-label phase lasted 2 months. ERPs were recorded from 19 EEG leads in a two-tone oddball paradigm and electrical sources of standard N1 and P2 as well as target N2 and P300 components were estimated. In both patients and controls, LORETA revealed an activation of the superior temporal gyrus [auditory cortex, Brodmann areas (BA) 41, 42, 22] for all four components. For standard P2, an additional activation was observed medially parietally in the precuneus (BA 7, 5). For target N2, also a medial frontal source (BA 9, 10, 32) was identified. Finally, for the target P300 component – in addition to the aforementioned sources – activations in the prefrontal cortex (BA 9, 10, 46, 47), the inferior parietal cortex (supramarginal gyrus, BA 40, 39) and the posterior cingulum (BA 31) were found. Thus, patients and controls did not differ in the structural processes engaged in these fundamental aspects of information processing. However, patients demonstrated significantly reduced source strength – for standard ERP components predominantly in the temporal lobe and for target components predominantly in the frontal lobe, indicating reduced energetic resources available for perceptual and cognitive demands of the discrimination task. While, as compared with placebo, estrogen alone had only minor effects on ERP source strength, Climodien generally increased the impressed current density at the ERP peak latencies, predominantly in the temporal lobe, indicating an increased stimulus-induced cortical arousal in the primary and higher-order auditory cortex. Specifically, Climodien enhanced P300 source strength in the left middle temporal gyrus and in the left superior frontal gyrus, brain regions that on the one hand have been shown to be affected by hormone therapy in positron emission tomography and functional magnetic resonance neuroimaging studies and that on the other hand are among those critical for encoding and memory processes.