Abstract Introduction Sleep supports emotion regulation by preferentially consolidating emotional memories while attenuating reactivity. We have shown that dream recall plays an active role by increasing negative over neutral memories and reducing reactivity. In women, fluctuating reproductive hormones across the menstrual cycle influence sleep features implicated in emotional memory, yet whether menstrual phases influence how dreams shape emotional processing remains unknown. This study investigates how dreams shape sleep-dependent emotional processing across the menstrual cycle in naturally cycling women. Methods 128 women (Mage = 32.85 ±11.93 years) completed up to four visits across verified menstrual phases (menses, late-follicular, mid-luteal, late-luteal). At each visit, participants performed the Emotional Picture Task with negative and neutral IAPS images in the evening (Test 1) and the next morning (Test 2). Participants rated old/new, arousal, and valence of images shown at each test. Dream reports were collected upon waking prior to Test 2. Linear mixed-effects models tested main and interaction effects of menstrual phase and dream recall. Results The menstrual cycle altered how dreaming shaped overnight emotional memory. Dream recall typically benefited the emotional trade-off effect —favoring consolidation of negative relative to neutral images (Δd′; t(410)=1.95, p=0.05)—but this pattern reversed during the late-luteal phase (dream × menstrual cycle: t(381)=-2.29, p=0.02). Dreaming showed independent effects on emotional reactivity. Higher valence and arousal ratings for negative images during Test 1 predicted greater dream recall (valence: t(344)=2.05, p=0.04; arousal: t(327)=2.04, p=0.04). Additionally, the more negatively participants rated the images at Test 1, the more negative their dreams tended to be (t(166)=-2.11, p=0.04). Dream recall was linked to reduced next-morning emotional reactivity (valence: t(413)=-2.89, p=0.004; arousal: t(413)=-2.65, p=0.01), with stronger reductions following more negative dreams (β=0.15, t(182)=2.86, p=0.005). Conclusion Menstrual cycle phase influenced how dreams shaped overnight emotional memory. Negative waking experiences increased dream recall and shaped dream content—and recalling dreams, especially negative ones, reduced emotional reactivity and typically strengthened emotional memory—but this benefit disappeared in the late-luteal phase when there are declining reproductive hormones. These findings suggest a novel interaction between the menstrual cycle and dreaming, showing that hormonal fluctuations reshape how sleep and dreams regulate emotional experience and memory. Support (if any) RF1AG061355 (Baker/Mednick)