Nocturnal panic (NP), waking from sleep in a state of panic, is a common occurrence among patients with panic disorder, with 44–71% reporting at least one such attack. NP is a non-REM event that is distinct from sleep terrors, sleep apnea, nightmares or dream-induced arousals. This review outlines recent advances in the characterization of NP, as well as current approaches to the assessment and treatment of NP. In contrast to earlier work, more recent studies suggest that patients with NP do not differ from patients without NP on sleep architecture, sleep physiology, self-reported sleep quality and severity of panic disorder. However, more precise measurement of physiological precipitants and features is warranted. Assessment of NP focuses on ruling out other explanations for NP, with differential diagnosis based on interviews, sleep polysomnography and ambulatory recording of sleep. Psychological treatment (cognitive-behavioral therapy) targets misappraisals of anxiety sensations, hyperventilatory response, and conditioned reactions to internal, physical cues. Recent evidence supports the efficacy of this approach, however, controlled studies on pharmacological agents in the treatment of NP are lacking. Research is needed to examine the effects of combined cognitive-behavioral therapy and medications, compared to medication alone in the treatment of NP.