Background The clinical learning environment (CLE) is a fundamental component of nursing education, crucial for translating theoretical knowledge into practical competence. While a supportive CLE is known to enhance nursing competence, the precise mechanisms underlying this relationship are not fully understood. Professional identity formation, the process by which students internalize the values, behaviors, and roles of the nursing profession, is theorized to be a key mediating factor in this dynamic. Objective This study aimed to investigate the mediating role of professional identity in the relationship between the perceived clinical learning environment and self-assessed nursing competence among undergraduate nursing students in Egypt. Methods A cross-sectional, descriptive-correlational study was conducted at the Faculty of Nursing, Zagazig University, Egypt. A stratified random sample of 520 undergraduate nursing students who had completed at least one clinical practicum was recruited. Data were collected using three validated, Arabic-translated instruments: the Clinical Learning Environment Scale (CLES), the Professional Identity Scale for Nursing Students (PISNS), and the Nursing Competence Assessment Tool (NCAT). Data analysis employed descriptive statistics, Spearman's rank-order correlations, and mediation analysis using the SPSS PROCESS macro (Model 4) with 2000 bootstrap samples to test the significance of the indirect effect. Results Participants reported a moderate-to-high level of nursing competence (Mean = 116.21 ± 14.54; 77.48 % of total score), with the highest scores in basic nursing skills and communication, and the lowest in medical-related knowledge. Professional identity (Mean = 67.15 ± 10.37) and perceptions of the CLE (Mean = 71.83 ± 10.99) were also rated positively. Spearman correlations revealed significant positive relationships between CLE and competence (rs = 0.67, p < .01), CLE and professional identity (rs = 0.66, p < .01), and professional identity and competence (rs = 0.56, p < .01). Mediation analysis confirmed that professional identity partially mediated the relationship between CLE and nursing competence. The indirect effect was significant (β = 0.544, p < .001), accounting for 26.6 % of the total effect (β = 0.788, p < .001). Conclusion The findings demonstrate that a positive clinical learning environment directly enhances nursing competence and indirectly fosters it through the development of a strong professional identity. This highlights the dual importance of optimizing both the structural/pedagogical aspects of clinical placements and intentionally integrating identity-forming activities into nursing education curricula to cultivate competent, confident future nurses.