Although it is an established finding that people with insomnia characteristically overestimate the time they have taken to get to sleep and underestimate the total amount of time they have slept, little is known about the mechanisms that underpin this phenomenon. Accordingly, this study sought to investigate whether the tendency to misperceive sleep among patients with insomnia is accounted for by (a) a general deficit in time estimation ability or (b) the context in which the time estimates are made. Twenty individuals with insomnia and 20 individuals who did not have insomnia were asked to perform two time estimation tasks; one in the laboratory during the day and one in the participant's own bedroom during the night. The two groups were compared with respect to the accuracy of their performance in estimating unfilled temporal intervals of various lengths. The results indicated that the performance of the insomnia group was no different from that of the noninsomnia group, regardless of the context in which the time estimates were made. Time overestimation correlated positively with cognitive and physiological arousal experienced during the time estimation tasks. These findings argue against the hypothesis that individuals with insomnia misperceive their sleep simply because they are poor estimators of time. Future research is required to test the hypothesis that increased cognitive arousal (worry) and physiological arousal are candidate mechanisms that underpin sleep misperception.