This article focuses on the design of competency-based performance assessment in e-learning. Though effort has been invested in designing powerful e-learning environments, relatively little attention has been paid to the design of valid and reliable assessments in such environments, leaving many questions to educational developers and teachers. As a solution to this problem, a systematic approach to designing performance assessments in e-learning contexts is presented, partly based on the 4C/ID model. This model enables the construction of realistic whole tasks instead of advocating education that is restricted to more isolated skills. A new assessment procedure also implies an alternative view of instructional design, learning and assessment. The requirements for the learning environment are addressed. Examples from a virtual seminar are presented to illustrate the design approach. The article concludes with the identification of possible pitfalls related to the approach and gives directions for future research.