Sleep inertia, the performance impairment that occurs immediately after awakening, has not been studied previously in relation to decision-making performance. Twelve subjects were monitored in the sleep laboratory for one night and twice awoken by a fire alarm (slow wave sleep, SWS and REM sleep). Decision making was measured over 10 3-min trials using the 'Fire Chief' computer task under conditions of baseline. SWS and REM arousal. The most important finding was that sleep inertia reduces decision-making performance for at least 30 min with the greatest impairments (in terms of both performance and subjective ratings) being found within 3 min after abrupt nocturnal awakening. Decision-making performance was as little as 51% of optimum (i.e. baseline) during these first few minutes. However, after 30 min. performance may still be as much as 20% below optimum. The initial effects of sleep inertia during the first 9 min are significantly greater after SWS arousal than after REM arousal, but this difference is not sustained. Decision-making performance after REM arousal showed more variability than after SWS arousal. Subjects reported being significantly sleepier and less clear-headed following both SWS and REM awakenings compared with baseline and this was sustained across the full 30 min. In order to generalize this finding to real-life situations, further research is required on the effects of continuous noise, emotional arousal and physical activity on the severity and duration of sleep inertia.