Background Yoga nidra is practised by sages for sleep. The practice is simple to use and has been clearly laid out, but its role in the treatment of chronic insomnia has not been well studied. Methods In this randomized parallel-design study conducted during 2012-16, we enrolled 41 patients with chronic insomnia to receive conventional intervention of cognitive behavioural therapy for insomnia (n=20) or yoga nidra (n=21). Outcome measures were both subjective using a sleep diary and objective using polysomnography (PSG). Salivary cortisol levels were also measured. PSG was done before the intervention in all patients and repeated only in those who volunteered for the same. Results Both interventions showed an improvement in subjective total sleep time (TST), sleep efficiency, wake after sleep onset, reduction in total wake duration and enhancement in subjective sleep quality. Objectively, both the interventions improved TST and total wake duration and increased N1% of TST. Yoga nidra showed marked improvement in N2% and N3% in TST. Salivary cortisol reduced statistically significantly after yoga nidra (p=0.041). Conclusion Improvement of N3 sleep, total wake duration and subjective sleep quality occurred following yoga nidra practice. Yoga nidra practice can be used for treatment of chronic insomnia after supervised practice sessions.