Many patients with schizophrenia present with impaired cognitive functioning and sleep disturbances. Dissociated stages of sleep represent instability within distinct sleep regulatory cerebral networks. Previous studies found increased rates of rapid eye movement (REM) sleep abnormalities in patients with schizophrenia and a positive association with psychopathology. In this study, we examined if sleep stage dissociation and REM sleep instability was associated with neurocognitive functioning in a sample of medicated patients with schizophrenia. The analyses were performed on 31 baseline polysomnographic recordings as well as baseline data on neurocognitive performance. Regression models were built with the cognitive composite score as primary dependent variable and measures of sleep stage dissociation, including REM sleep without atonia (RSWA), REM sleep without eye movements, non-REM sleep with eye movements, REM sleep percentage in REM periods and REM sleep stability as independent variables. Analyses were adjusted for age, gender, total antipsychotic dose, total benzodiazepine dose, and symptom severity. After correction for multiple testing, we found that the neurocognitive composite score was inversely associated with the degree of RSWA. Exploratory analyses with the cognitive sub scores as dependent variables showed that RSWA was associated with cognitive performance across several sub domains. Dissociated sleep stages, specifically the RSWA feature, might represent a new treatment target for improving cognitive impairment in patients with schizophrenia.