In this article, we provide evidence that the tendency of anxious peri-adolescents to generalize negative memories may take shape during sleep. Higher anxiety severity in youth aged 9–14 was associated with greater generalization of negative information after sleep, compared to wakefulness. Negative overgeneralization is a core feature of anxiety disorders where an aversive experience is generalized to new situations that share features, and may help explain why anxious individuals perceive relatively safe situations as threatening. These findings underscore sleep’s key role in emotional memory processing during a sensitive developmental stage and point to the need for deeper understanding of what is happening during sleep (i.e. sleep neurophysiology)in anxious youth to drive aberrant memory consolidation processes.