Immune dysregulation and delayed onset of sleep wake cycling (SWC) are associated with worse outcome in neonatal encephalopathy (NE), however the association between sleep and immune dysfunction in NE remains unclear. Aimed to evaluate association of sleep and systemic inflammation with outcomes in NE. Amplitude-integrated electroencephalography (aEEG) recordings were collected on infants undergoing therapeutic hypothermia (TH). Duration to onset of (SWC) and sleep quality (SQ) were examined. Blood samples collected during the first 2 days of life. Thirteen pro- and anti-inflammatory serum cytokines were quantified. Adverse outcome defined as death or abnormal MRI brain. Earlier onset of SWC and better SQ had less adverse outcomes. SQ provided better prognostic value and showed better interobserver agreement compared to duration to SWC. Better SQ associated with lower cytokines EPO and interleukin (IL)-1β. In infants with unfavourable outcome, shorter duration to SWC was associated with higher EPO and better SQ was associated with lower TNF-α. Earlier onset of SWC or better SQ showed less systemic inflammation and fewer adverse outcomes. SQ during TH provided better prognostic information than time of onset of SWC. Modulation of circadian rhythm in infants with NE may have an immunomodulatory role, leading to improved outcomes.