Peer evaluation of team member effectiveness is often used to complement cooperative learning in the classroom by holding students accountable for their team contributions. Drawing on the tenants of self-determination theory, this study investigated the impact of formative peer evaluation in university level team-based design projects. The hypothesis was that the introduction of formative peer evaluation cycles would result in a more student-centered learning climate, increased competence, reduced doubt, and improved student learning. Two semesters were compared in this quasi-experimental study in which results of peer evaluation became modifiers to students' grades in the final project. In the second semester, peer evaluation was also used multiple times formatively to provide students with feedback and encourage changes in behavior without impacting grades. When formative peer evaluation was implemented, students earned higher grades on the final project and in the course and perceived a more student-centered learning environment, more competence, and less doubt about the course.