The ability to differentiate between negative emotional states [negative emotion differentiation (NED)] has been conceptualized as a trait that facilitates effective emotion regulation and buffers stress reactivity. In the present research, we investigated the role of NED in within-person processes of daily affect regulation and coping during times of stress (the first COVID-19-related pandemic lockdown in April 2020). Using intensive longitudinal data, we analyzed whether daily stress had an indirect effect on sleep quality through calmness in the evening, and we tested whether NED moderated this within-person indirect effect by buffering the link between daily stress and calmness in the evening. A non-representative community sample (n = 313, 15–82 years old) participated in a 21-day ambulatory assessment with twice-daily surveys. The results of multilevel mediation models showed that higher daily stress was related to within-day change in calmness from morning to evening, resulting in less calmness in the evening within persons. Less calmness in the evening, in turn, was related to poorer nightly sleep quality within persons. As expected, higher NED predicted a less negative within-person link between daily stress and calmness in the evening, thereby attenuating the indirect effect of daily stress on nightly sleep quality through calmness. This effect held when we controlled for mean negative emotions and depression. The results provide support for a diathesis-stress model of NED, and hence, for NED as a protective factor that helps to explain why some individuals remain more resilient during times of stress than others.