Abstract Study Objectives Insomnia has been on the rise during the 2019 coronavirus disease (COVID-19) pandemic, which may disproportionately affect racial minorities. This study characterized racial disparities in insomnia during the pandemic and evaluated mechanisms for such disparities. Methods Participants included 196 adults (48 Black) from a 2016–2017 clinical trial of insomnia treatment who were reevaluated in April 2020. Race was evaluated as a predictor of change in insomnia, impact of COVID-19, and COVID-19 stress. Mediation models using the PRODCLIN method evaluated the extent to which: (1) COVID-19 impact accounted for Black-White disparities in change in insomnia, and (2) COVID-19 stress accounted for associations between discrimination and change in insomnia. Results Increases in insomnia symptoms during COVID-19 were greater in Black compared to White participants, with 4.3 times the odds of severe insomnia (Insomnia Severity Index ≥ 22). Symptom severity was associated with pre-pandemic experiences of discrimination. Black participants were also disproportionately impacted by COVID-19, with twice the odds of irreparable loss of income/employment and four times the rate of COVID-19 diagnoses in their sociofamilial network compared to White participants. The disproportionate impact of COVID-19 accounted for 69.2% of the relationship between race and change in insomnia severity, and COVID-19 related stress accounted for 66.5% of the relationship between prior history of racial discrimination and change in insomnia severity. Conclusions Black-White disparities in insomnia severity during COVID-19 may be driven by structural inequities resulting in the disproportionate impact of COVID-19 on Black Americans. Results lend support for the minority stress model in the context of sleep health. Clinical Trial Registration Sleep to Prevent Evolving Affecting Disorders (SPREAD). NCT number: NCT02988375. https://clinicaltrials.gov/ct2/show/NCT02988375.