Nightmares are intense, emotionally negative mental experiences that usually occur during late-night sleep and result in abrupt awakenings. Questionnaire-based studies have shown that nightmares are related to impaired sleep quality; however, the polysomnographic profile of nightmare subjects has been only scarcely investigated. We investigated the sleep architecture of 17 individuals with frequent nightmares and 23 control subjects based on polysomnographic recordings of a second night spent in the laboratory after an adaptation night. Nightmare subjects in comparison with control subjects were characterized by impaired sleep architecture, as reflected by reduced sleep efficiency, increased wakefulness, a reduced amount of slow wave sleep, and increased nocturnal awakenings, especially from Stage 2 sleep. While these differences were independent of the effects of waking psychopathology, nightmare subjects also exhibited longer durations of REM sleep that was mediated by heightened negative affect. Our results support that nightmares are related to altered sleep architecture, showing impaired sleep continuity and emotion-related increase in REM propensity.