Undergraduate nursing students have been reported to hold negative and stigmatizing attitudes towards mental health consumers and to be under‐prepared for mental health clinical placement. This study aimed to investigate undergraduate nurses’ stigma and recovery attitudes to mental illness, and describe their understandings of personal recovery on entry and exit to traditional mental health clinical placement. A pre/post‐test survey was administered to N = 249 nursing students in Australia. Demographic data, attitudes towards mental health nursing and clinical placement, the Opening Minds Scale for Healthcare Providers (OMS‐HC), Recovery Attitudes Questionnaire (RAQ‐7), and an open‐ended question on understandings of personal recovery from mental illness were collected on entry (T1) and exit (T2) to placement. At T1, students reported moderate stigma and positive attitudes towards recovery (OMS‐HC mean = 34.6; RAQ‐7 mean = 4.0). At T2, there was a reduction in stigma (social distance P = 0.02, d = 0.26) and improvement in recovery attitudes (P < 0.01, d = 0.40). Attitudes towards mental health nursing and placement also improved (P < 0.01). Having a family member with mental illness predicted improvements in stigma and recovery attitudes. On entry to placement, most students described accurate understandings of personal recovery, which were maintained during placement. The findings indicate that mental health clinical placements are effective in improving students’ mental health stigma and recovery attitudes and provide a prime opportunity to attract students into the field. Co‐produced or consumer‐led education provided by peer workers during clinical placements may improve students’ stigmatizing attitudes and stimulate their interest to work in the field.