Insomnia is the most common sleep disorder and a prevalent mental health issue, characterised by challenges in initiating or maintaining sleep, which negatively impacts daytime functioning and overall quality of life. Insomnia is closely linked to emotion regulation (ER) and plays a significant role in its persistence. This literature review synthesises findings from 17 studies that show a consistent deficit in ER among people living with insomnia, highlighting issues like heightened hyperarousal, increased cognitive arousal before sleep, and reliance on maladaptive cognitive processes like self-blame, catastrophising and rumination. Evidence also indicates a bidirectional relationship between sleep and mood, with negative emotional reactivity emerging as a central mediator. Neurobiological research points to dysregulation within the prefrontal–limbic network and suggests that strengthening cingulo–limbic connectivity may benefit both sleep and mood. Standard interventions can alleviate insomnia symptoms and enhance ER, while approaches directly targeting ER strategies may offer individualised advantages. Treatment outcomes are further influenced by factors such as psychiatric comorbidity and coping styles. However, current research is limited by inadequate study designs and measurement inconsistencies. Future studies should adopt more rigorous and standardised methods to clarify mechanisms and improve treatment strategies for insomnia.