Sleep enhances integration across multiple stimuli, abstraction of general rules, insight into hidden solutions and false memory formation. Newly learned information is better assimilated if compatible with an existing cognitive framework or schema. This article proposes a mechanism by which the reactivation of newly learned memories during sleep could actively underpin both schema formation and the addition of new knowledge to existing schemata. Under this model, the overlapping replay of related memories selectively strengthens shared elements. Repeated reactivation of memories in (...) different combinations progressively builds schematic representations of the relationships between stimuli. We argue that this selective strengthening forms the basis of cognitive abstraction, and explain how it facilitates insight and false memory formation. (shrink)