Objectives: To provide a comprehensive assessment of whether sleep problems among the chronically ill are associated with decrements in functional health and well-being, decreases in work functioning and increases in the use of health care services. Design: Cross-sectional survey of patients from the Medical Outcomes Study (MOS), an observational study of functional health and well-being. Chronically ill patients (n = 3484) were sampled from health maintenance organizations, large multi-specialty groups, and solo or single-specialty group practices in Boston, Los Angeles, and Chicago. Chronic illness subgroups include: clinical depression (n = 527), congestive heart failure (229), diabetes (n = 577), recent myocardial infarction (n = 170), hypertension (n = 2206), asthma (n = 84), back problems (n = 771), and arthritis (n = 672). ANCOVA analyses of the relationship between sleep problems and SF-36 scales and summaries were performed. In addition, a ‘relative impact’ analysis determined what scales or summaries were most associated with sleep problems. Main outcome measures: Eight scales and two summary measures from the SF-36 Health Survey, work productivity and work quality measures and self-reports of health care utilization. Results: Comparing chronically ill patients with no sleep problems to those with mild, moderate, or severe sleep problems revealed a direct association between sleep problems and decrements in health-related quality of life (HRQOL) as measured by SF-36 scales and summaries (MANOVA F 24.1; d.f. 24; p ≤ 0.0001). In addition, significant differences in HRQOL were found when comparing patients with and without sleep problems within most of the disease groups studied. The relative impact analysis revealed that measures of mental health and the mental health summary were most associated with sleep problem severity in the total sample and chronic disease subsets, in comparison with measures of physical health. In addition, monotonic relationships were found between severity of sleep problems and decreases in work productivity and increases in health care utilization, as expected. Conclusions: The analyses revealed that sleep problems go hand in hand with poorer mental health, diminished work productivity and work quality and greater use of health care services. Sleep problems, therefore, may be a significant confounding factor in the interpretation of health outcomes among patients with chronic diseases.