The aim of the study was to explore the impact of insomnia and sleep disturbance on the functional outcomes of mild and moderated stroke. A multicenter-observational and correlation study was performed. Two hundred eighty patients with mild-moderate severity stroke admitted to three acute hospitals rehabilitation departments. Diagnostic Statistical Manual of Mental Disorders, Fourth Edition, criteria were used to define patients with insomnia and any sleep disturbance. Patient's initial and final functions were evaluated using the Korean version of the Berg Balance Scale, the Korean version of Modified Barthel Index, the Korean version of Mini-Mental State Examination, the Korean version of the Frontal Assessment Battery, and the Korean version of National Institute of Health Stroke Scale. Sleep disturbance and function were assessed with respect to stroke severity as defined by the Korean version of National Institute of Health Stroke Scale. The prevalence of Diagnostic Statistical Manual of Mental Disorders, Fourth Edition insomnia and any sleep disturbance were 26.9% and 56.7%, respectively. After adjusting for age, sex, depression, anxiety, length of stay, and hypnotic usage, the improvement of Korean version of the Berg Balance Scale was significantly lower in the any sleep disturbance group. In the moderate stroke group, the Korean version of the Berg Balance Scale improvement was significantly lower in the any sleep disturbance group, whereas in the mild stroke group, the Korean version of the Berg Balance Scale improvement was not significant. Sleep disturbance after stroke was found to have negative effects on functional recovery, especially balance improvement in moderate stroke group.