Sleep architecture carries vital information about brain health across the lifespan. In particular, the ability to express distinct vigilance states is a key physiological marker of neurological wellbeing in the newborn infant although systems-level mechanisms remain elusive. Here, we demonstrate that the transition from quiet to active sleep in newborn infants is marked by a substantial reorganization of large-scale cortical activity and functional brain networks. This reorganization is attenuated in preterm infants and predicts visual performance at two years. We find a striking match between these empirical effects and a computational model of large-scale brain states which uncovers fundamental biophysical mechanisms not evident from inspection of the data. Active sleep is defined by reduced energy in a uniform mode of neural activity and increased energy in two more complex anteroposterior modes. Preterm-born infants show a deficit in this sleep-related reorganization of modal energy that carries novel prognostic information.