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Studies performed across the COVID-19 pandemic waves point to the persistent impact of the pandemic on sleep and mental health. We expand these data by examining insomnia, pre-sleep arousal, psychosocial factors, and retrospective changes in sleep pattern during the COVID-19 second wave lockdown period in Georgia. Data were collected through an online survey (n = 1117). The prevalence rate of probable insomnia disorder was 24.2%. Clinically relevant somatic and cognitive pre-sleep arousal was present in 49.8% and 58.0% of participants, and high levels of anxiety, depression and social isolation were found in 47.0%, 37.3%, 47.2% of respondents, respectively. We observed high prevalence rates of worse sleep quality, delayed bedtimes and risetimes, longer sleep latencies, higher awakenings and shorter sleep durations, relative to the pre-pandemic period. COVID-19-infected participants showed more severe sleep and mental problems. Specific predictors differentially affected insomnia, somatic and cognitive pre-sleep arousal. Depression and COVID-19 infection emerged as vulnerability factors for pre-sleep arousal, which, in turn, was associated with a higher predisposition to insomnia disorder. We confirm the strong deteriorating impact of the COVID-19 pandemic on sleep and psychosocial well-being during the second wave lockdown period. The specific association between pre-sleep arousal, insomnia, and psychosocial factors is of clinical relevance for the prevention of severity and persistence of sleep and mental problems across the repeated lockdown/reopening waves. Modulation of pre-sleep arousal may prove beneficial to implement targeted interventions.