Memory consolidation is known to be influenced by sleep microarchitectural features, particularly during rapid eye movement (REM) and slow-wave sleep (SWS). Given that memory deficits are putative risk factors for high levels of internalizing symptoms, we hypothesized that memory processes might represent a key pathway linking sleep microarchitecture and internalizing symptoms. A sample of 152 healthy young and middle-aged adults (ages 18-59) encoded scenes featuring either negative objects (e.g., a snake) or neutral objects (e.g., a chipmunk) placed on neutral backgrounds (e.g., an outdoor scene). Participants indicated whether an object or a background was old or new compared to what they encountered during encoding. Participants also underwent one night of laboratory-monitored polysomnography. Internalizing symptoms, including mixed general distress (a shared component of depression and anxiety), were assessed using self-report questionnaires. Results indicated that negative false memory, reflected in the extent to which participants mistakenly recognized negative objects not presented during encoding, significantly mediated the associations between elevated beta and gamma spectral power during REM sleep and greater severity of mixed general distress. In contrast, reduced overall memory accuracy across all scene components mediated the relation between higher beta, but not gamma, spectral power during SWS and increased mixed general distress, although not significantly. These results suggest that memory impairments may serve as a potential pathway linking heightened activity in higher frequency bands, indicative of cortical hyperarousal during sleep, to the increased comorbidity of depression and anxiety.