Sleep spindle activity has been associated with improvements in procedural and declarative memory. Here, for the first time, we looked at the role of spindles in the integration of newly learned information with existing knowledge, contrasting this with explicit recall of the new information. Two groups of participants learned novel spoken words (e.g., cathedruke) that overlapped phonologically with familiar words (e.g., cathedral). The sleep group was exposed to the novel words in the evening, followed by an initial test, a polysomnographically monitored night of sleep, and a second test in the morning. The wake group was exposed and initially tested in the morning and spent a retention interval of similar duration awake. Finally, both groups were tested a week later at the same circadian time to control for possible circadian effects. In the sleep group, participants recalled more words and recognized them faster after sleep, whereas in the wake group such changes were not observed until the final test 1 week later. Following acquisition of the novel words, recognition of the familiar words was slowed in both groups, but only after the retention interval, indicating that the novel words had been integrated into the mental lexicon following consolidation. Importantly, spindle activity was associated with overnight lexical integration in the sleep group, but not with gains in recall rate or recognition speed of the novel words themselves. Spindle activity appears to be particularly important for overnight integration of new memories with existing neocortical knowledge.