Episodic memory, or the ability to remember past events with specific detail, is central to the human experience and is related to learning and adaptive functioning in a variety of domains. In typically developing children, episodic memory emerges during infancy and improves during early childhood and beyond. Developmental processes within the hippocampus are hypothesized to be primarily responsible for both the early emergence and persistence of episodic memory in late infancy and early childhood. However, these hypotheses are based on non-human models. In-vivo investigations in early human development of hippocampal processes have been significantly limited by methodological challenges in acquiring neuroimaging data, particularly task-related functional neuroimaging data, from infants and toddlers. Recent studies in adults have shown neural activity in the brain regions supporting episodic memory during slow-wave sleep using functional magnetic resonance imaging (fMRI), and fMRI has been increasingly utilized in infancy and early childhood to address other research questions. We review initial evidence and present preliminary data showing the promise of this approach for examining hippocampal contribution to how infants and toddlers remember individual events, and their association with information about the context in which the event occurred. Overall, our review, integrated with the presentation of some preliminary data provides insight on leveraging sleep to gain new perspectives on early memory functioning.