Disturbances of sleep are typical for most depressed patients and belong to the core symptoms of the disorder. Since the 1960s polysomnographic sleep research has demonstrated that besides disturbances of sleep continuity, depression is associated with altered sleep architecture, i.e., a decrease in slow wave sleep (SWS) production and disturbed rapid eye movement (REM) sleep regulation. Shortened REM latency (i.e., the interval between sleep onset and the occurrence of the first REM period), increased REM sleep duration and increased REM density (i.e., the frequency of rapid eye movements per REM period) have been considered as biological markers of depression which might predict relapse and recurrence. High risk studies including healthy relatives of patients with depression demonstrate that REM sleep alterations may precede the clinical expression of depression and may thus be useful in identifying subjects at high risk for the illness. Several models have been developed to explain REM sleep abnormalities in depression, like the cholinergic–aminergic imbalance model or chronobiologically inspired theories, which are reviewed in this overview. Moreover, REM sleep alterations have been recently considered not only as biological “scars” but as true endophenotypes of depression. This review discusses the genetic, neurochemical and neurobiological factors that have been implicated to play a role in the complex relationships between REM sleep and depression. We hypothesize on the one hand that REM sleep dysregulation in depression may be linked to a genetic predisposition/vulnerability to develop the illness; on the other hand it is conceivable that REM sleep disinhibition in itself is a part of a maladaptive stress reaction with increased allostatic load. We also discuss whether the REM sleep changes in depression may contribute themselves to the development of central symptoms of depression such as cognitive distortions including negative self-esteem and the overnight consolidation of negatively toned emotional memories.