Background Competency‐based training and assessment is considered the best practice internationally in postgraduate clinical psychology education. In Australia, there are still some ways to go as programmes begin to integrate competency‐based pedagogical models into clinical training and assessment. Further understanding of the strengths and challenges of these models will be useful to educators interested in developing a competency‐based approach. Methods A structured literature review was carried out using the databases PsychInfo, PubMed, and PsychArticles. Keywords were: competency, and “training” or “assessment” or “model” or “clinical” or “psychology” or “medicine” or “allied health.” Articles had to be written in the English language and published in peer‐reviewed journals. Relevant book chapters and web references from professional accreditation bodies were also assessed for inclusion. A total of 54 references were utilised in the review. Results The review supports the relevance of competency‐based learning and teaching. It draws on seminal benchmarking work from the international literature and considers the strengths and limitations of competency‐based approaches to clinical health training and assessment. The review provides support for the ongoing progression towards competency‐based training models in Australian postgraduate clinical psychology. Conclusions Competency‐based training and assessment methods offer educators sophisticated mechanisms for ensuring that clinical psychology graduates are prepared to meet the demands of professional practice and public accountability. Further efforts at integrating competency‐based training models into Australian postgraduate curriculum, and associated research into the outcomes, are necessary to ensure a pedagogical culture of best practice in this country.