Background Disturbances in emotion regulation and sleep are shared across anxiety and mood disorders. Poor sleep has been shown to impair cognitive processes which may undermine cognitive regulatory function. However, it remains unknown if sleep quality impacts regulatory mechanisms in clinical anxiety and depression. Methods During fMRI, 78 patients with social anxiety disorder, generalized anxiety disorder, and/or major depressive disorder completed a validated emotion regulation task, which involved reappraisal (i.e., decrease negative affect) as compared to viewing aversive images. Sleep quality was assessed with the Pittsburgh Sleep Quality Index (PSQI) and actigraphy, representing subjective and objective measures of sleep, respectively. Regression analysis was conducted with the PSQI and actigraphy sleep efficiency, duration, and wake‐after sleep onset variables. Results PSQI and actigraphy measures indicated that the majority of patients experienced problematic sleep, however, subjective and objective sleep measures were uncorrelated. Whole‐brain voxel‐wise regression analysis, controlling for diagnosis, revealed worse self‐reported sleep corresponded with less reappraise‐related activation in the dorsal anterior cingulate cortex (DACC). The same analysis performed with actigraphy data showed less sleep efficiency positively corresponded with DACC activation. Post‐hoc stepwise regression analysis showed these sleep measures predicted DACC activity whereas anxiety and depression symptoms did not. Conclusions Individual differences in self‐perceived and objective sleep quality differentially modulated the DACC, which is implicated in cognitive reappraisal. Findings suggest neural correlates of emotion regulation tracks different aspects of the sleep experience. Results also indicate sleep disturbance may play a role in the emotion dysregulation observed in anxiety and depressive disorders.