An IC includes both "volatile" CMOS transistors (FETs) and embedded non-volatile memory (NVM) cells, both including polysilicon gate structures, sidewall oxide layers, sidewall spacer structures, and source/drain regions. The sidewall spacers of both the NVM cells and the FETs are made up of a spacer material with local charge storage nodes that is capable of storing electrical charge (e.g., silicon-nitride with traps or oxide with silicon nanocrystals). The source/drain regions of the NVM cells omit lightly-doped drains (which are used in the CMOS FETs), and the NVM cells are formed with thinner sidewall oxide layers than the CMOS FETs to facilitate programming/erasing operations. A production method includes a modified CMOS process flow where the CMOS FET gate structures receive different source/drain diffusions and oxides than the NVM gate structures, but both receive substantially identical sidewall spacers, which are used as charge storage structures in the NVM cells.