Aim of the present study was to compare the effect of Objective Structured Clinical Examinations (OSCE) and direct observation methods of assessment among nursing Students. Subject and methods :Twenty four nursing students,2nd year-Apply medical Science-Taif university, KSA were included in the study. Two tools were used to collect data for the present study, first is, a structured self-administered questionnaire to collect data related psychological, cognitive, physiological and general effects of exams on students. Second, an observational Checklist was developed for each procedure to assess students' clinical performance. Pass is considered when at least 60% of marks obtained in both exam with direct observation and OSCE methods .Results of the present study revealed that statistically significant differences were found between clinical exams using the direct observation and OSCE methods related to physiological and general effects. No statistically significant differences were found between clinical exams using the direct observation and OSCE methods related to psychological and cognitive effects as well as students' clinical achievements. The present study concluded that general effect of exam on students were better when using OSCE than the direct observation assessment method. The present study recommended that OSCE should be used as a method of assessment the clinical achievement for nursing students and further studies should be done in this area.