Since ancient times it is known that melancholia and sleep disturbances co-occur. The introduction of polysomnography into psychiatric research confirmed a disturbance of sleep continuity in patients with depression, revealing not only a decrease in Slow Wave Sleep, but also a disinhibition of REM (rapid eye movement) sleep, demonstrated as a shortening of REM latency, an increase of REM density, as well as total REM sleep time. Initial hopes that these abnormalities of REM sleep may serve as differential-diagnostic markers for subtypes of depression were not fulfilled. Almost all antidepressant agents suppress REM sleep and a time-and-dose-response relationship between total REM sleep suppression and therapeutic response to treatment seemed apparent. The so-called Cholinergic REM Induction Test revealed that REM sleep abnormalities can be mimicked by administration of cholinomimetic agents. Another important research avenue is the study of chrono-medical timing of sleep deprivation and light exposure for their positive effects on mood in depression. Present day research takes the view on insomnia, i.e., prolonged sleep latency, problems to maintain sleep, and early morning awakening, as a transdiagnostic symptom for many mental disorders, being most closely related to depression. Studying insomnia from different angles as a transdiagnostic phenotype has opened many new perspectives for research into mechanisms but also for clinical practice. Thus, the question is: can the early and adequate treatment of insomnia prevent depression? This article will link current understanding about sleep regulatory mechanisms with knowledge about changes in physiology due to depression. The review aims to draw the attention to current and future strategies in research and clinical practice to the benefits of sleep and depression therapeutics.