Up to 800,000 people in England could benefit from the £45 app.
The app can work through wearable devices like the Apple watch and uses an AI algorithm to provide individuals with tailored cognitive behavioural therapy for insomnia (CBT-I).
The National Institute for Health and Care Excellence (Nice) said it would save the NHS money as well as reduce prescriptions of medicines such as zolpidem and zopiclone, which can be dependency forming.
Dr. Nick Broughton, CEO of Oxford Health NHS Foundation Trust and Board Member of the Oxford Academic Health and Science Network (AHSN), said: "This is a significant moment for the NHS and UK healthcare innovation as a whole.
"Sleepio has the potential to transform current mental health pathways by expanding access to guideline-recommended care for everyone in England.
"The Oxford AHSN and Oxford Health are delighted to have played a key role in Sleepio’s flagship implementation in the Thames Valley, where Innovate UK funding helped generate rich real-world evidence that made NICE’s evaluation possible.
"We hope that Sleepio will now be made available across the country."
Its economic analysis found healthcare costs were lower after one year of using Sleepio, mostly because of fewer GP appointments and sleeping pills prescribed.
The app provides a digital six-week self-help programme involving a sleep test, weekly interactive CBT-I sessions and keeping a diary about sleeping patterns.
The sessions focus on identifying thoughts, feelings and behaviours that contribute to the symptoms of insomnia. A daily sleep diary helps users track their progress and the programme tailors advice to individuals.
Nice predicts up to 800,000 people could benefit from using Sleepio in England.
Jeanette Kusel, acting director for MedTech and digital at Nice, said until now patients had been offered sleeping pills and taught about sleep hygiene.
She said "rigorous, transparent and evidence-based analysis" had found Sleepio saved the NHS money and reduced reliance on dependence-forming drugs sometimes used to treat the condition.
"This is a good example of where a digital health technology can help the NHS.
"The evidence has shown using Sleepio reduces the number of GP appointments people with insomnia need and will also cut the number of prescriptions for sleeping pills delivered by pharmacists."
The cost of Sleepio is £45 (excluding VAT) per person.
Big Health co-founder and Oxford University Professor Colin Espie, said: "We are delighted that Sleepio has become the first-ever digital therapeutic to receive NICE guidance after rigorous evaluation.
"Digital therapeutics aren’t wellness apps; they are proper treatments backed by data and clinical evidence, fit for assessment by world-leading bodies like NICE.
"With the surge in demand for mental health support over the past two years, scalable and clinically-proven digital technologies simply must be part of the solution.
"Positive outcomes through NICE guidance are a significant step towards that goal, helping to reduce the NHS care backlog and provide safe, evidence-based, accessible support for everyone who needs it."
Big day for people with insomnia. So proud of my team @wearebighealth. A decade of dedicated research. 12 RCTs and, health economic rivals, and real world data. @OxSCNi @UniofOxford @NICEComms https://t.co/wGbpPmXpWt— Prof Colin Espie (@ProfEspie) May 20, 2022