Previous research suggests that stress and depression each impact sleep and memory consolidation. Both reportedly can lead to measurable changes in sleep architecture, as well as a bias toward negatively arousing information over neutral. The effects of stress and depression may be related, as a hyperactive HPA axis or dysfunctional negative feedback loop has been identified as a marker in some forms of depression. The present study was designed to determine the individual effects of stress and depression and how they interact to affect sleep architecture and emotional and neutral memory performance. Healthy and mild-to-moderately depressed students were recruited to participate. All participants arrived at approximately the same time of day and encoded complex scenes consisting of negative or neutral objects placed on neutral backgrounds. After encoding, half of each group participated in a psychosocial stress task designed to elicit an endogenous cortisol response, while the other half completed a matched control task, and salivary samples were collected for later cortisol analysis. That evening, participants returned to the lab for a night of polysomnograph-recorded sleep. In the morning, their memory was tested for both the negative and neutral scene components viewed the previous day. Results indicated that while the stressor was successful in generating a stress response in both groups, the healthy and depressed cohorts demonstrated no difference in baseline cortisol or cortisol reactivity. While there was no impact on memory consolidation for the negative components of scenes, individuals in the depressed group that participated in the stress task were found to have poorer memory for neutral scene information, particularly for the neutral central object. Stressed depressed individuals also spent significantly more time in REM sleep compared to depressed controls, but this association did not appear to influence subsequent memory performance. These results indicate that stress and depression interact to reduce veridical memory of neutral information. Further cognitive research in clinical populations is necessary to refine the individual contributions and combined effects of mental health on cognitive performance and sleep in hopes of generating better understandings of the disorders and potentially highlight new forms of treatment.