Due to the coronavirus disease 2019 (COVID-19) pandemic, populations from many countries have been confined at home for extended periods of time in stressful environmental and media conditions. Cross-sectional studies already evidence deleterious psychological consequences, with poor sleep as a risk factor for impaired mental health. However, limitations of cross-sectional assessments are response bias tendencies and the inability to track daily fluctuations in specific subjective experiences in extended confinement conditions. In a prospective study conducted across three European countries, we queried participants (N = 166) twice a day through an online interface about their sleep quality and their negative psychological experiences for two consecutive weeks. The focus was set on between- and within-person associations of subjective sleep quality with daytime experiences, such as rumination, psychotic-like experiences, and somatic complaints about the typical symptoms of the coronavirus. The results show that daily reports of country-specific COVID-19 deaths predicted increased negative mood, psychotic-like experiences, and somatic complaints during the same day and decreased subjective sleep quality the following night. Disrupted sleep was globally associated with negative psychological outcomes during the study period, and a relatively poorer night of sleep predicted increased rumination, psychotic-like experiences, and somatic complaints the following day. This temporal association was not paralleled by daytime mental complaints predicting relatively poorer sleep quality on the following night. Our findings show that night-to-night changes in sleep quality predict how individuals cope the next day with daily challenges induced by home confinement.