It is commonly believed that memory consolidation during sleep takes place primarily during REM sleep (REM - 'rapid eye movement'). Here we present data and methodological considerations indicating that this concept should be replaced in favor:of a more differentiated view on sleep associated memory formation, which aside from the different sleep stages (REM sleep versus slow wave sleep) takes into account the type of memory (declarative versus non-declarative) and the release of cortisol from the hypothalamo-pituitary-adrenal (HPA) system. Most of REM sleep occurs during the second half of nocturnal sleep whereas the first half is dominated-by extensive periods of slow wave sleep (SWS). The comparison of memory performance after periods of early and late retention sleep indicates that consolidation benefits more from the first half of sleep dominated by SWS than by the second half of sleep dominated by REM-sleep. However, this is true only for declarative memories mediated via hippocampal structures. In contrast, non-declarative procedural memories appear to benefit more from the second than first half of sleep. SWS in the first half of sleep is associated with a distinct inhibition of cortisol release whereas cortisol blood concentrations are strongly increased during the second half of sleep. Cortisol directly regulates hippocampal neuronal activity via glucocorticoid receptors (GR) and mineralicorticoid receptors (MR)- The improving effect of early sleep on consolidation of declarative memories can be completely blocked by experimentally enhancing blood cortisol concentrations during this period of sleep. A comparable blockade can be induced by administration of dexamethason which is a selective GR agonist. Results show that declarative memories are consolidated primarily during periods of early sleep associated with SWS. The inhibition of cortisol release leading to an inactivation of hippocampal GR during this early sleep period, represents a necessary prerequisite for the consolidation process.