Sleep benefits veridical memories, resulting in superior recall relative to off-line intervals spent awake. Sleep also increases false memory recall in the Deese-Roediger-McDermott (DRM) paradigm. Given the suggestion that emotional veridical memories are prioritized for consolidation over sleep, here we examined whether emotion modulates sleep’s effect on false memory formation. Participants listened to semantically related word lists lacking a critical lure representing each list’s ‘‘gist.’’ Free recall was tested after 12 hours containing sleep or wake. The Sleep group recalled more studied words than the Wake group but only for emotionally neutral lists. False memories of both negative and neutral critical lures were greater following sleep relative to wake. Morning and Evening control groups (20-minute delay) did not differ on ruling out circadian accounts for these differences. These results support the adaptive function of sleep in both promoting the consolidation of veridical declarative memories and in extracting unifying aspects from memory details.