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The aim of this study was to test the hypothesis that REM sleep is a phase of intensified memory consolidation. Pairs of subjects were woken in the middle of the night and presented with a categorizable list of 24 words in the form of six four-word quartets. Arousal measures (CFF) were taken and immediate free recall attempted before sleep was resumed. Subjects were reawakened at the beginning or end of their next REM period and tested for retention following further CFF trials. Recall was facilitated when a period of REM sleep intervened during the retention interval, but deteriorated when sleep was composed entirely of non-REM (NREM) sleep stages. The relative improvement following REM sleep was found to be a function of higher retrieval efficiency. It was suggested that either the high arousal associated with REM sleep incidentally maintained the memory trace in a more retrievable form or that REM sleep facilitates consolidation giving rise to improved retrieval.