The Objective Structured Clinical Examination (OSCE) for student assessment is well established, with an extensive body of research documenting that this is a valid means to assess clinical skills that are fundamental to the practice of medicine. The OSCE consists of a circuit of stations which tests a range of skills and learning to assess undergraduate medical students. A well-constructed OSCE provides important information about candidate performance and the quality of training. It is used at the University of South Dakota School of Medicine (USDSM) in assessment of third year medical students during their Obstetrics Clerkship, and as a teaching tool in the Pediatric Clerkship. On August 10, 1996, the USDSM administered an OSCE for the first time to third year medical students. The purpose of this article is to present state of the art information about setting up OSCE based on our recent experience and to provide practical examples of OSCE questions which can be addressed in the clinical setting. The narrative, references and examples give guidelines for the preparation of OSCE testing. The OSCE provided a standardized way of assessing clinical competence. Both students and faculty were very satisfied with the examination, and felt that the material tested was relevant and appropriate. The OSCE process does serve to identify areas of weakness in the curriculum and/or teaching methods, and thus can serve as a mechanism to improve educational effectiveness.