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Sleep is an essential biological process regulating emotions and involving interactions between limbic and cortical systems. The amygdala, hippocampus, insula, and anterior cingulate cortex function as a bottom-up network for emotional processing, whereas prefrontal regions control the top-down aspect. Neurophysiological, neurochemical, and network modifications affect these circuits during sleep stages i.e. rapid eye movement (REM) and non-REM (NREM) phases. Sleep deprivation throws this balance out of synchrony, making emotional responsiveness increasingly pronounced and regulation more compromised, and can lead to, or aggravate, mental health disorders such as depression, anxiety, and PTSD. This chapter integrates fundamental neuroscience, system modelling, neuroimaging, and clinical insights into account of limbic and cortical brain circuitry in the context of sleep-induced emotional regulation.