Introduction In healthcare education, Objective Structured Clinical Examinations (OSCEs) are often utilised as a practical assessment tool and can cause marked elevations in psychophysiological stress levels for students. Cognitive Appraisal Theory asserts that individuals engage in evaluative processes to determine whether their available coping resources are sufficient to meet the demands of a given situation. This study examined the relationship between cognitive appraisals and psychophysiological responses, as well as clinical performance, in final-year paramedicine students during simulated high-stress OSCEs. Specifically, it investigated whether threat appraisals are associated with distinct physiological stress markers and poorer clinical outcomes compared to challenge appraisals. Methods A total of twenty-six undergraduate paramedicine students participated in the study, evaluated through cardiovascular indicators, functional near-infrared spectroscopy (fNIRS) neuroimaging, clinical performance evaluations, and stress and decision-making assessments. Results The results revealed that students who approached the simulated OSCE with a challenge-oriented mindset demonstrated more regulated cardiovascular and cerebral stress responses and achieved significantly higher scores on clinical performance measures. In contrast, those exhibiting threat appraisals showed heightened physiological arousal, demonstrated by significant increases in cortisol levels, whilst achieving lower clinical competence. Conclusion These findings suggest that the way students cognitively appraise high-pressure clinical scenarios can meaningfully influence both their biological stress responses and their ability to perform effectively. This study highlights the importance of fostering challenge appraisals which may enhance students’ resilience under pressure and ultimately improve patient care outcomes in real-world emergency settings.