Insomnia is a prevalent and costly health problem that is often associated with psychological distress, functional impairments, and reduced quality of life. Although significant advances have been made in the treatment of insomnia in the last decade, its etiology is still poorly understood. Psychophysiological factors such as stress, anxiety, and hyperarousal are often presumed to play a major role in causing sleep disturbances, but the specific pathophysiological mechanisms of those factors in insomnia has not been well documented. The purpose of this review is to provide an update on our understanding of the etiology and potential pathophysiological mechanisms of insomnia. We also describe the present treatment and management of this sleep disorder.