Aim To identify the theories used to explain learning in simulation and to examine how these theories guided the assessment of learning outcomes related to core competencies in undergraduate nursing students. Background Nurse educators face the challenge of making explicit the outcomes of competency‐based education, especially when competencies are conceptualized as holistic and context dependent. Design Theoretical review. Data Sources Research papers (N = 182) published between 1999–2015 describing simulation in nursing education. Review Methods Two members of the research team extracted data from the papers, including theories used to explain how simulation could engender learning and tools used to assess simulation outcomes. Contingency tables were created to examine the associations between theories, outcomes and tools. Results Some papers (N = 79) did not provide an explicit theory. The 103 remaining papers identified one or more learning or teaching theories; the most frequent were the National League for Nursing/Jeffries Simulation Framework, Kolb's theory of experiential learning and Bandura's social cognitive theory and concept of self‐efficacy. Students’ perceptions of simulation, knowledge and self‐confidence were the most frequently assessed, mainly via scales designed for the study where they were used. Core competencies were mostly assessed with an observational approach. Conclusion This review highlighted the fact that few studies examined the use of simulation in nursing education through learning theories and via assessment of core competencies. It also identified observational tools used to assess competencies in action, as holistic and context‐dependent constructs.