Sleep plays an important role in memory consolidation within multiple memory systems including contextual fear extinction memory, but little is known about the mechanisms that underlie this process. Here, we show that fear extinction training in rats, which extinguished conditioned fear, increased both slow-wave sleep and rapid-eye movement (REM) sleep. Surprisingly, 24 h later, during memory testing, only 57% of the fear-extinguished animals retained fear extinction memory. We found that these animals exhibited an increase in phasic pontine-wave (P-wave) activity during post-training REM sleep, which was absent in the 43% of animals that failed to retain fear extinction memory. The results of this study provide evidence that brainstem activation, specifically potentiation of phasic P-wave activity, during post-training REM sleep is critical for consolidation of fear extinction memory. The results of this study also suggest that, contrary to the popular hypothesis of sleep and memory, increased sleep after training alone does not guarantee consolidation and/or retention of fear extinction memory. Rather, the potentiation of specific sleep-dependent physiological events may be a more accurate predictor for successful consolidation of fear extinction memory. Identification of this unique mechanism will significantly improve our present understanding of the cellular and molecular mechanisms that underlie the sleep-dependent regulation of emotional memory. Additionally, this discovery may also initiate development of a new, more targeted treatment method for clinical disorders of fear and anxiety in humans that is more efficacious than existing methods such as exposure therapy that incorporate only fear extinction.