Background In simulation-based education, the effectiveness of observation or active participation on the retention of knowledge and skills is uncertain. The aim of the study was to investigate knowledge retention, technical and non-technical skills and self-efficacy among observers and active participants in a simulated palliative extubation. Method We included medical and nursing undergraduates and residents. On the first day, participants were divided into observers and active participants, each with one participant from medical and nursing backgrounds. We presented a recorded lecture, followed by knowledge and self-efficacy tests for all participants before and after the simulation. After fourteen days, both groups actively participated in the scenario, without observers. We assessed technical and non-technical skills during the simulation and repeated the knowledge and self-efficacy tests after the training. Results Forty-four individuals participated in this study, half from each training programme. Knowledge improved after the first training in both groups, with a significant drop only for active participants after 14 days. Self-efficacy increased in both groups, being higher for the active participants. After 14 days, active participants performed better in technical skills compared to observers, but it was similar in both groups for non-technical skills. Conclusions Active participation seems superior to observation in the development of self-efficacy and the retention of technical skills. Observation may be superior to active participation in knowledge retention. Retention of non-technical skills appears to be similar with both observation and active participation. The findings have important implications for current simulation-based education, but further research is recommended.