This study was an 8-week, randomized, double-blind, parallel-group investigation that compared the effects of nefazodone and fluoxetine on sleep architecture and on clinician- and patient-rated sleep measures in 43 outpatients with moderate to severe, nonpsychotic major depressive disorder and insomnia. Twenty-two patients received nefazodone 200 mg daily for 1 week, followed by 400 mg daily for 7 weeks. Twenty-one patients received fluoxetine 20 mg daily. Dosage increases (to 500 mg/day for nefazodone and 40 mg/day for fluoxetine) were available after day 29, depending on clinician judgement. Sleep parameters were measured during baseline phase, while patients were unmeasured and symptomatic, and at weeks 2, 4, and 8 of treatment. Nefazodone and fluoxetine were equally effective as antidepressants. However, compared with baseline, nefazodone increased sleep efficiency and reduced the number of awakenings and percent awake and movement time, whereas fluoxetine increased the number of awakenings and did not significantly alter sleep efficiency or percent awake and movement time. Although fluoxetine increased stage 1 sleep and rapid eye movement (REM) latency and reduced total percent REM sleep, nefazodone increased REM sleep, decreased REM latency, and did not alter stage 1 sleep. Differences between treatment groups, based on change from baseline, revealed greater sleep efficiency, fewer awakenings, less percent awake and movement time, less percent stage 1 and more REM sleep, and shorter REM latency for nefazodone compared with fluoxetine. Significantly greater improvement in clinician- and patient-rated sleep disturbance was found with nefazodone compared with fluoxetine. Nefazodone was associated with better sleep quality.