Insomnia, a prevalent sleep disorder, is increasingly recognized for its interaction with the gut microbiota (GM) through the bidirectional gut–brain axis (GBA). Emerging evidence indicates that insomnia disrupts central nervous system (CNS) function by inducing hyperactivation of the hypothalamic-pituitary-adrenal (HPA) axis and immune dysregulation, neurotransmitter dysfunction. These neuroendocrine disturbances extend to the gut, altering GM composition and compromising intestinal microenvironmental homeostasis. Dysbiosis, defined as an alteration in microbial diversity (e.g., a decrease in Shannon index values) and an imbalance in microbial composition, weakens intestinal barrier integrity, exacerbates systemic inflammation, and alters microbial metabolism, leading to imbalances in neuroactive compounds such as short-chain fatty acids (SCFAs), bile acids (BAs), and neurotransmitters—factors that influence CNS function and sleep quality. Conversely, the GM affects CNS activity through metabolic by-products, neurotransmitters, and immune regulation, impacting neuroinflammation, synaptic plasticity, and cognitive function. The intricate interplay between insomnia and GM is further evidenced by their shared influence on metabolic disorders and cognitive decline. This review also examines existing contradictions in insomnia-GM research, underscoring the need for standardized multi-omics approaches to resolve inconsistencies. Future research should prioritize identifying strain-specific probiotics, refining microbiota transplantation methods, and developing personalized microbiota-based interventions. Clinically, this review lays the groundwork for GM-targeted therapies for insomnia, including biomarker discovery, precision probiotics to restore microbial balance, and dietary strategies to improve GM diversity. These insights pave the way for targeted, individualized GM-based therapeutics, advancing precision medicine in sleep disorder management and addressing current knowledge gaps.