Sleeping Powder is usually a mixture of the charred corpse of a creature, like a slug or an intestinal worm, which is ground up into a fine powder and wrapped in cloth tablets or coated on paper soaked in blood. A shinobi would place this powder in a closed room and the people in it would fall into a deep sleep. To avoid falling asleep himself, the shinobi would stuff grass up his nose or he would inhale pepper to block his nose.
The Giyoshu military manual recounts the use of a sleeping powder made of an insect called the kuso-mushi (excrement insect) which is dried in the shade. It is most likely a dung-beetle and makes people fall asleep if it's burnt.