Caffeine is one of the most widely consumed psychoactive substances and it has profound effects on sleep and wake function. Laboratory studies have documented its sleep-disruptive effects. It clearly enhances alertness and performance in studies with explicit sleep deprivation, restriction, or circadian sleep schedule reversals. But, under conditions of habitual sleep the evidence indicates that caffeine, rather then enhancing performance, is merely restoring performance degraded by sleepiness. The sleepiness and degraded function may be due to basal sleep insufficiency, circadian sleep schedule reversals, rebound sleepiness, and/or a withdrawal syndrome after the acute, over-night, caffeine discontinuation typical of most studies. Studies have shown that caffeine dependence develops at relatively low daily doses and after short periods of regular daily use. Large sample and population-based studies indicate that regular daily dietary caffeine intake is associated with disturbed sleep and associated daytime sleepiness. Further, children and adolescents, while reporting lower daily, weight-corrected caffeine intake, similarly experience sleep disturbance and daytime sleepiness associated with their caffeine use. The risks to sleep and alertness of regular caffeine use are greatly underestimated by both the general population and physicians.