Classical human memory studies investigating the acquisition of temporally-linked events have found that the memories for two events will interfere with each other and cause forgetting (i.e., interference; Wixted, 2004). Importantly, sleep helps consolidate memories and protect them from subsequent interference (Ellenbogen, Hulbert, Stickgold, Dinges, & Thompson-Schill, 2006). We asked whether sleep can also repair memories that have already been damaged by interference. Using a perceptual learning paradigm, we induced interference either before or after a consolidation period. We varied brain states during consolidation by comparing active wake, quiet wake, and naps with either non-rapid eye movement sleep (NREM), or both NREM and REM sleep. When interference occurred after consolidation, sleep and wake both produced learning. However, interference prior to consolidation impaired memory, with retroactive interference showing more disruption than proactive interference. Sleep rescued learning damaged by interference. Critically, only naps that contained REM sleep were able to rescue learning that was highly disrupted by retroactive interference. Furthermore, the magnitude of rescued learning was correlated with the amount of REM sleep. We demonstrate the first evidence of a process by which the brain can rescue and consolidate memories damaged by interference, and that this process requires REM sleep. We explain these results within a theoretical model that considers how interference during encoding interacts with consolidation processes to predict which memories are retained or lost.