Sensory disconnection from the environment is a hallmark of sleep and is crucial for sleep maintenance. It remains unclear, however, whether internally generated percepts-phantom percepts-may overcome such disconnection and, in turn, how sleep and its effect on sensory processing and brain plasticity may affect the function of the specific neural networks underlying such phenomena. A major hurdle in addressing this relationship is the methodological difficulty to study sensory phantoms, due to their subjective nature and lack of control over the parameters or neural activity underlying that percept. Here, we explore the most prevalent phantom percept, subjective tinnitus-or tinnitus for short-as a model to investigate this. Tinnitus is the permanent perception of a sound with no identifiable corresponding acoustic source. This review offers a novel perspective on the functional interaction between brain activity across the sleep-wake cycle and tinnitus. We discuss characteristic features of brain activity during tinnitus in the awake and the sleeping brain and explore its effect on sleep functions and homeostasis. We ask whether local changes in cortical activity in tinnitus may overcome sensory disconnection and prevent the occurrence of global restorative sleep and, in turn, how accumulating sleep pressure may temporarily alleviate the persistence of a phantom sound. Beyond an acute interaction between sleep and neural activity, we discuss how the effects of sleep on brain plasticity may contribute to aberrant neural circuit activity and promote tinnitus consolidation. Tinnitus represents a unique window into understanding the role of sleep in sensory processing. Clarification of the underlying relationship may offer novel insights into therapeutic interventions in tinnitus management.