The role of the endogenous circadian pacemaker in the timing of the sleep-wake cycle and the regulation of the internal structure of sleep, including REM sleep, EEG slow-wave (0.75–4.5 Hz) and sleep spindle activity (12.75–15.0 Hz) was investigated. Eight men lived in an environment free of time cues for 33–36 d and were scheduled to a 28 hr rest-activity cycle so that sleep episodes (9.33 hr each) occurred at all phases of the endogenous circadian cycle and variations in wakefulness preceding sleep were minimized. The crest of the robust circadian rhythm of REM sleep, which was observed throughout the sleep episode, was positioned shortly after the minimum of the core body temperature rhythm. Furthermore, a sleep-dependent increase of REM sleep was present, which, interacting with the circadian modulation, resulted in highest values of REM sleep when the end of scheduled sleep episodes coincided with habitual wake-time. Slow-wave activity decreased and sleep spindle activity increased in the course of all sleep episodes. Slow-wave activity in non-REM sleep exhibited a low amplitude circadian modulation which did not parallel the circadian rhythm of sleep propensity. Sleep spindle activity showed a marked endogenous circadian rhythm; its crest coincident with the beginning of the habitual sleep episode. Analyses of the (nonadditive) interaction of the circadian and sleep-dependent components of sleep propensity and sleep structure revealed that the phase relation between the sleep-wake cycle and the circadian pacemaker during entrainment promotes the consolidation of sleep and wakefulness and facilitates the transitions between these vigilance states.