Despite major anatomical differences with other mammalian sensory systems, olfaction shares with those systems a modulation by sleep/wake states. Sleep modulates odor sensitivity and serves as an important regulator of both perceptual and associative odor memory. In addition, however, olfaction also has an important modulatory impact on sleep. Odors can affect the latency to sleep onset, as well as the quality and duration of sleep. Olfactory modulation of sleep may be mediated by direct synaptic interaction between the olfactory system and sleep control nuclei, and/or indirectly through odor modulation of arousal and respiration. This reciprocal interaction between sleep and olfaction presents novel opportunities for sleep related modulation of memory and perception, as well as development of non-pharmacological olfactory treatments of simple sleep disorders.