Electroencephalographic (EEG) sleep patterns were examined in 27 psychotic and 79 nonpsychotic subjects with major depression to evaluate the validity of the psychotic-nonpsychotic subtype dichotomy. Sleep in psychotic depression was characterized by increased wakefulness, decreased rapid eye movement (REM) sleep percentage, and decreased REM activity even after controlling for clinical differences in age, severity, and agitation. Psychotic depressive subjects also were more likely to have extremely short sleep-onset REM latencies. In psychotic depression EEG sleep varied as a function of total illness duration. Patients with recent-onset syndromes had profiles characterized by marked initial insomnia, increased stage 1 sleep percentage, and long REM latency; patients with illnesses of longer duration had extremely short REM latencies. Demonstration of selected EEG sleep variables discriminating between psychotic and nonpsychotic depression further supports psychotic depression as a distinct subtype of major affective disorder.