Rapid Eye Movement Sleep (REM) is thought to process emotions via memory reactivation. Such REM reactivation can be triggered by presenting a tone associated with the target memory. This reduces subjective arousal ratings for negative stimuli. Here, we measure arousal objectively in brain and autonomic system. Participants rated negative image-sound pairs, half of which were then re-presented during subsequent REM. All images were re-rated in a Magnetic Resonance Imaging (MRI) scanner with pulse oximetry 48 h after encoding. Reactivation in REM reduced responses in the brain's Salience Network (SN), including Anterior Insula and dorsal Anterior Cingulate Cortex (dACC), and associated emotion-processing regions: orbitofrontal cortex, subgenual cingulate, and left amygdala. Memory reactivation in REM reduced heart rate deceleration (HRD). Subjective arousal ratings were reduced for more upsetting images and increased for less upsetting images. Our findings have implications for the use of memory reactivation to treat depression and anxiety disorders.