Late-life depression and dementia of the Alzheimer's type both have profound, although different, effects on electroencephalographic (EEG) sleep patterns. Thus, while depression is associated with REM sleep disinhibition and extreme sleep fragmentation (e.g., sleep onset REM periods and early morning awakenings), Alzheimer's disease is associated with deficits in the production of phasic activity during sleep (e.g., rapid eye movements and K-complexes) and with increased rates of sleep-disordered breathing. These differences have been shown to be reliable in large numbers of patients during the past five years and appear to extend to differences in sleep between depressive pseudodementia and dementia with secondary depression. Preliminary data also suggest that pretreatment sleep onset REM periods may be associated with enhanced vulnerability to recurrent depression. In summary, sleep physiological measures provide useful diagnostic and prognostic indexes in late-life neuropsychiatric disorders.