In recent years, research has witnessed an increasing interest in the bidirectional relationship between emotion and sleep. Sleep seems important for restoring daily functioning, whereas deprivation of sleep makes us more emotionally aroused and sensitive to stressful stimuli and events. Sleep appears to be essential to our ability to cope with emotional stress in everyday life. However, when daily stress is insufficiently regulated, it may result in mental health problems and sleep disturbances too. Not only does emotion impact sleep, but there is also evidence that sleep plays a key role in regulating emotion. Emotional events during waking hours affect sleep, and the quality and amount of sleep influences the way we react to these events impacting our general well-being. Although we know that daytime emotional stress affects sleep by influencing sleep physiology, dream patterns, dream content and the emotion within a dream, its exact role is still unclear. Other effects that have been found are the exaggeration of the startle response, decrease in dream recall and elevation of awakening thresholds from rapid eye movement (REM), REM-sleep, increased or decreased latency to REM-sleep, increase in percentage of REM-density, REM-sleep duration, as well as the occurrence of arousals in sleep as a marker of sleep disruption. Equally, the way an individual copes with emotional stress, or the way in which an individual regulates emotion may modulate the effects of emotional stress on sleep. The research presented here supports the idea that adaptive emotion regulation benefits our follow-up sleep. We thus conclude the current review with a call for future research in order to clarify further the precise relationship between sleep, emotion and emotion regulation, as well as to explain further how sleep dissolves our emotional stress.