Reality-monitoring errors occur when internally generated thoughts are remembered as external occurrences. We hypothesized that sleep-dependent memory consolidation could reduce them by strengthening connections between items and their contexts during an afternoon nap. Participants viewed words and imagined their referents. Pictures of the referents also accompanied half of the words. After a 2-h break filled with sleep (n = 31) or wakefulness (n = 32), participants indicated if they previously viewed a picture of each word. Nap participants made fewer reality-monitoring errors than wake participants by adopting more stringent response criteria, suggesting that sleep reduces reality-monitoring errors primarily by influencing post-retrieval decision processes.