This study compared cortical arousal mechanisms during the night using event-related potentials (N1 and P2), and compared sleep misperception in 30 adults with psychophysiological insomnia (Psy-I), 28 adults with paradoxical insomnia (Para-I), and 30 good sleepers (GS). Participants (age range = 25-55 years) spent 4 consecutive nights in the laboratory, and Night-4 data were used for analysis. N1 amplitude was generally larger in both insomnia groups compared to GS, and P2 amplitude was larger in Para-I than in the 2 other groups, especially in REM sleep. Results suggest that, although hyperarousal appears to persist during sleep in adults with insomnia, inhibition deficits are more likely to be present in Para-I compared to Psy-I.