We investigated the role of daytime sleepiness and sleep quality in psychosocial outcomes of patients with obstructive sleep apnea (OSA) treated with continuous positive airway pressure (CPAP). Thirty-seven individuals with moderate to severe OSA and compliant with CPAP treatment for at least 3 months were compared to 27 age- and education-matched healthy controls. The OSA group and the control group were studied with overnight polysomnography (PSG) and compared on measures of daytime sleepiness (Epworth Sleepiness Scale), sleep quality (Pittsburg Sleep Quality Index), mood (Beck Depression Inventory, Profile of Mood States), and functional outcomes (Functional Outcomes of Sleep Questionnaire). After CPAP treatment, the OSA group improved on sleep quality and sleepiness. As a group, they did not differ from controls on sleep architecture after CPAP. The OSA group also showed significant improvements in functional outcomes and was comparable to controls on mood and functional outcomes. Persistent difficulties included lowered activity level and residual sleepiness in some individuals. Sleepiness was found to be a significant predictor of mood and affective states, while both sleepiness and sleep quality predicted functional outcomes. These results highlight the importance of assessment and intervention targeting psychosocial functioning and sleepiness in individuals with OSA after treatment.