Two experiments investigated perceived and physiological changes in anxiety in children (7 – 11 years; N = 222; 98 female) in a performance situation after they observed another child in a similar situation with a negative or neutral outcome. The sample’s London, U.K. school catchment areas ranged from low to high socio-economic statuses with 31% to 49% of children from ethnic minority backgrounds. In Study 1, participants watched one of two films of a child playing a simple musical instrument (a kazoo). In one film, an audience of peers respond negatively to the performance. In the other film, audience response was neutral. Participants were then filmed playing the instrument themselves and measures of perceived and actual heart rate were taken along with individual differences in trait social anxiety, anxiety sensitivity, and effortful control. To better understand findings from Study 1, Study 2 replicated Study 1 but added a manipulation check and measures of effortful control and self-reported anxiety.  Multiple regression analyses found watching a negative performance film, compared with a neutral one, was associated with a blunted heart rate response for children with low effortful control (Study 1 and 2). These findings suggest that children who are low in effortful control may disengage during performance tasks if the situation’s social threat is elevated.  Hierarchical regression analyses found that, compared to the neutral film, the negative performance film elevated children’s self-report anxiety (Study 2). Overall, the findings indicated that anxiety in performance situations can be elevated after observing peers’ negative experiences.