Sleep is known to benefit memory consolidation, but its effect on false memory is less clear. We applied the simplified conjoint recognition paradigm to investigate how sleep affects the cognitive processes behind correct or false recognition, according to fuzzy-trace theory, and measured the retrieval of verbatim traces, retrieval of gist traces, and phantom recollection. Participants studied 24 lists of semantically related words lacking the strongest common associate or theme word. Recognition was tested 12 h later, following either a night's sleep or daytime wakefulness. The recognition test featured studied words, nonstudied theme words (false recognition), and unrelated words. False recognition rate was higher after sleep than after daytime wakefulness. True recognition rate was the same. Analysis of the cognitive processes underlying recognition showed that phantom recollection was higher after sleep. Assuming that phantom recollection reflects the retrieval of strong gist traces, sleep may strengthen gist traces and promote gist extraction.