Study Objectives Mechanisms underlying the distress of hyperarousal in people with insomnia remain enigmatic. We investigated whether insomnia impedes the overnight adaptation to emotional distress. Methods We induced the distressful self-conscious emotion of shame four times across three consecutive days by exposing 64 participants to their often embarrassingly out-of-tune singing, recorded earlier during a Karaoke session. Perceived physical, emotional, and social distress was assessed with the Experiential Shame Scale. Results Compared to exposures followed by wakefulness, exposures followed by sleep resulted in overnight relief of physical component of shame in normal sleepers, but in a striking opposite overnight worsening in people with insomnia. Conclusions Our findings are the first to experimentally show that the benefits of sleep are not only lost when sleep is poor; people with insomnia experience a maladaptive type of sleep that actually aggravates physically perceived distress. Maladaptive sleep could shed new light on posttraumatic stress disorder (PTSD) and on diurnal mood fluctuation and the counterintuitive favorable effects of sleep deprivation in depression.