The purpose of this study was to examine the central tenets of the processing efficiency theory using psychophysiological measures of attention and effort. Twenty-eight participants were divided equally into either a high or low trait anxiety group. They were then required to perform a simulated driving task while responding to one of four target light-emitting diodes. Cortical activity and dual task performance were recorded under two conditions – baseline and competition – with cognitive anxiety being elevated in the competitive session by an instructional set. Although driving speed was similar across sessions, a reduction in P3 amplitude to cue onset in the light detection task occurred for both groups during the competitive session, suggesting a reduction in processing efficiency as participants became more state anxious. Our findings provide more comprehensive and mechanistic evidence for processing efficiency theory, and confirm that increases in cognitive anxiety can result in a reduction of processing efficiency with little change in performance effectiveness.