Increased anxiety and stress are frequently found in children with autism spectrum disorder and are associated with social challenges. Recently, we reported changes in social competence following peer-mediated, theatre-based intervention. The purpose of this study was to examine the impact of the intervention on reducing anxiety and stress. Participants included 30 youth with autism spectrum disorder (8-14 years old) randomly assigned to the experimental (17) or waitlist control (13) group. Pretest adjusted, between-group differences were analyzed for state-anxiety, trait-anxiety, play-based cortisol, and diurnal cortisol. Pearson correlations were conducted between anxiety, cortisol, and group play. Significant pretest-adjusted between-group differences at posttest were observed on trait-anxiety (F(1, 27) = 9.16, p = 0.005) but not state-anxiety (F(1, 27) = 0.03, p = 0.86), showing lower trait-anxiety in the experimental group. There were no between-group differences on cortisol. There was a significant negative correlation between group play and trait-anxiety (r = -0.362, p = 0.05). Playground cortisol correlated with group play, for the experimental group (r = 0.55, p = 0.03). The theatre-based, peer-mediated intervention not only contributes to improvement in social competence in youth with autism spectrum disorder but also contributes to reductions in trait-anxiety associated with more social interaction with peers. Results suggest that some degree of physiological arousal is essential for social interaction.