Psychological literacy refers to the ability of a psychology student to use psychological knowledge, rather than merely "learn" it, in the context of personal, social, and organizational issues. Embedding psychological literacy in assessment is a critical step in helping students develop this capacity. This report presents an innovative applied scenarios assignment for a social and developmental psychology module, designed to challenge students to make theoretical and evidence-based explanations or suggestions in relation to novel real-world situations. Across the scenarios, students are required to respond and adapt to a range of tasks and purposes and effectively communicate their knowledge to diverse audiences. Student evaluation (n = 142) of their experiences and perceived competencies developed from working on the scenarios compared to traditional essay assignments were analyzed. Findings suggest students valued the authentic nature of the assessment and the challenges it presents. They recognized the unique skills they developed, including application and communication skills, and felt that they gained better understanding of psychological content as a result. We hope this report will inspire readers to design similar assessment tasks that provide students with opportunities to practice, and thus develop, their psychological literacy.