Sleep enhances motor sequence learning (MSL) in young adults by concatenating subsequences ("chunks") formed during skill acquisition. To examine whether this process is reduced in aging, we assessed performance changes on the MSL task following overnight sleep or daytime wake in healthy young and older adults. Young adult performance enhancement was correlated with nREM2 sleep, and facilitated by preferential improvement of slowest within-sequence transitions. This effect was markedly reduced in older adults, and accompanied by diminished sigma power density (12-15 Hz) during nREM2 sleep, suggesting that diminished chunk concatenation following sleep may underlie reduced consolidation of MSL in older adults.