OBJECTIVE The study examined electroencephalographic (EEG) sleep and hypothalamic-pituitary-adrenal (HPA) changes associated with depressive episode and during recovery in adolescent depression. METHODS Sixteen adolescents with major depressive disorder and 16 volunteers with no personal or family history of psychiatric disorder participated in a three-night EEG sleep protocol along with nocturnal urinary free cortisol (NUFC). Depressed subjects also were restudied during stable remission from the depressive episode. RESULTS Compared with controls, depressed adolescents had significantly reduced sleep efficiency, shorter latency to rapid eye movement (REM) sleep, increased phasic REM sleep, and elevated NUFC excretion. Among depressed subjects, EEG sleep values did not change significantly from episode to remission. NUFC excretion reduced significantly during remission from the depressive episode. CONCLUSIONS The findings that EEG sleep measures are independent of clinical state, whereas HPA variables are state dependent, suggest that sleep and HPA measures make a differential contribution to our understanding of the pathophysiology and prognosis of mood disorders in adolescent patients.