In this chapter we discuss the effects of moderate ethanol consumption on the treatment of psychiatric and sleep disorders. A review of the literature on the interactions of ethanol with neurotransmitters and psychotropic medications suggests that although ethanol affects the clinical course of psychiatric and sleep disorders by different mechanisms, it does so principally through perturbations it causes in the balance of central nervous system neurotransmitter systems, which may modify the clinical course of primary psychiatric and sleep disorders and undermine the therapeutic response to psychotropic medications. Neurotransmitter responses may also be manifested clinically by rebound phenomena, akin to a subsyndromal withdrawal, which affect sleep and precipitate anxiety and mood symptoms. In addition, ethanol also modifies the clearance and disposition of a variety of psychotropic metabolites and interferes with their clinical effectiveness. We recommend that most psychiatric patients, and all patients with sleep disorders, should abstain from even moderate ethanol use, as this may adversely affect their clinical course and response to treatment.