Sleep is an essential biological phase of our daily life cycle and is necessary for maintaining homeostasis, alertness, metabolism, cognition, and other key functions across the animal kingdom. Dysfunctional sleep leads to deleterious effects on health, mood, and cognition, including memory deficits and an increased risk of diabetes, stroke, and neurological disorders. Sleep is regulated by several brain neuronal circuits, neuromodulators, and neurotransmitters, where cannabinoids have been increasingly found to play a part in its modulation. Cannabinoids, a group of lipid metabolites, are regulatory molecules that bind mainly to cannabinoid receptors (CB1 and CB2). Much evidence supports the role of cannabinoid receptors in the modulation of sleep, where their alteration exhibits sleep-promoting effects, including an increase in non-rapid-eye movement sleep and a reduction in sleep latency. However, the pharmacological alteration of CB1 receptors is associated with adverse psychotropic effects, which are not exhibited in CB2 receptor alteration. Hence, selective alteration of CB2 receptors is also of clinical importance, where it could potentially be used in treating sleep disorders. Thus, it is crucial to understand the neurobiological basis of cannabinoids in sleep physiology. In this review article, the alteration of the endocannabinoid system by various cannabinoids and their respective effects on the sleep-wake cycle are discussed based on recent findings. The mechanisms of the cannabinoid receptors on sleep and wakefulness are also explored for their clinical implications and potential therapeutic use on sleep disorders.