Sleep quality declines with age; however, the underlying mechanisms remain elusive. We found that hyperexcitable hypocretin/orexin (Hcrt/OX) neurons drive sleep fragmentation during aging. In aged mice, Hcrt neurons exhibited more frequent neuronal activity epochs driving wake bouts, and optogenetic activation of Hcrt neurons elicited more prolonged wakefulness. Aged Hcrt neurons showed hyperexcitability with lower KCNQ2 expression and impaired M-current, mediated by KCNQ2/3 channels. Single-nucleus RNA-sequencing revealed adaptive changes to Hcrt neuron loss in the aging brain. Disruption of Kcnq2/3 genes in Hcrt neurons of young mice destabilized sleep, mimicking aging-associated sleep fragmentation, whereas the KCNQ-selective activator flupirtine hyperpolarized Hcrt neurons and rejuvenated sleep architecture in aged mice. Our findings demonstrate a mechanism underlying sleep instability during aging and a strategy to improve sleep continuity.