Mind-wandering shares a number of important similarities with thinking in depression. This experiment examines whether mind-wandering provides a useful marker of cognition in dysphoria during a word learning task. Dysphoria was associated with more accessible mind-wandering when attempting to encode verbal items. In addition, in the dysphoric population, periods when the mind wandered led to greater decoupling from task-relevant processing as indexed by slower response times, and greater physiological arousal, as indexed by faster heart rates. In the general population, periods of mind-wandering when attempting to encode information were associated with poor retrieval and high skin conductance. Finally, the extent to which mind-wandering was associated with poor retrieval was associated with an individuals’ latency to retrieve specific autobiographical memories from outside the laboratory. These results provide strong evidence for the utility of mind-wandering as a marker for depressive thinking and suggest a number of important implications for therapy for depression.