Memories are not stored as exact copies of our experiences. As a result, remembering is subject not only to memory failure, but to inaccuracies and distortions as well. Although such distortions are often retained or even enhanced over time, sleep’s contribution to the development of false memories is unknown. Here, we report that a night of sleep increases both veridical and false recall in the Deese–Roediger–McDermott (DRM) paradigm, compared to an equivalent period of daytime wakefulness. But while veridical memory deteriorates across both wake and sleep, false memories are preferentially preserved by sleep, actually showing a non-significant improvement. The same selectivity of false over veridical memories was observed in a follow-up nap study. Unlike previous studies implicating deep, slow-wave sleep (SWS) in declarative memory consolidation, here veridical recall correlated with decreased SWS, a finding that was observed in both the overnight and nap studies. These findings lead to two counterintuitive conclusions – that under certain circumstances sleep can promote false memories over veridical ones, and SWS can be associated with impairment rather than facilitation of declarative memory consolidation. While these effects produce memories that are less accurate after sleep, these memories may, in the end, be more useful.