Contribution: Student engagement and interest in engineering is compared between virtual and physical laboratory projects, designed to be realistic and replicate engineering practice. Reported motivation and engagement was greater in the virtual project than the physical projects. Results are interpreted in terms of the different affordances for instructional design using physical and virtual laboratories. Background: Interest is increasing in incorporating virtual laboratories in engineering curricula. Numerous studies report equal or greater gains in students' conceptual understanding in a virtual laboratory than a corresponding physical laboratory, but many researchers question if virtual laboratories can stimulate the same level of excitement for engineering as physical laboratories. Research Questions: Do students' self-reports of interest in engineering depend on the instructional design afforded by the laboratory mode? How do instructional designs of virtual and physical laboratory projects relate to students' perceptions of engagement, their contribution to the team, and the transfer of prior coursework to meet project objectives? Method: In a within-subjects design, 118 students' interest and engagement in two physical laboratory projects and one of two virtual laboratory projects in a senior-year capstone course is investigated. Separate principal components analyses were used to develop reliable scales for interest and for engagement. Findings: Students reported greater engagement, perceptions of contribution to their group's learning, opportunities to transfer prior learning from coursework, and end-of-course interest in engineering problem solving in the virtual laboratory project rather than the physical laboratory projects. The positive outcomes are connected to instructional design through the affordances of the virtual laboratory.