Objective To assess the ability of rural Australian nurse teams to manage deteriorating patients. Methods This quasi-experimental design used pre- and post-intervention assessments and observation to evaluate nurses' simulated clinical performance. Registered nurses (n=44) from two hospital wards completed a formative knowledge assessment and three team-based video recorded scenarios (Objective Structured Clinical Examinations (OSCE)). Trained patient actors simulated deteriorating patients. Skill performance and situation awareness were measured and team performance was rated using the Team Emergency Assessment Measure. Results Knowledge in relation to patient deterioration management varied (mean 63%, range 27–100%) with a median score of 64%. Younger nurses with a greater number of working hours scored the highest (p=0.001). OSCE performance was generally low with a mean performance of 54%, but performance was maintained despite the increasing complexity of the scenarios. Situation awareness was generally low (median 50%, mean 47%, range 17–83%, SD 14.03) with significantly higher levels in younger participants (r=−0.346, p=0.021). Teamwork ratings averaged 57% with significant associations between the subscales (Leadership, Teamwork and Task Management) (p<0.006), the global rating scale (p<0.001) and two of the OSCE measures (p<0.049). Feedback from participants following the programme indicated significant improvements in knowledge, confidence and competence (p<0.001). Conclusion Despite a satisfactory knowledge base, the application of knowledge was low with notable performance deficits in these demanding and stressful situations. The identification and management of patient deterioration needs to be taught in professional development programmes incorporating high fidelity simulation techniques. The Team Emergency assessment tool proved to be a valid measure of team performance in patient deterioration scenarios.