Introduction: Clinical practice is a critical component of professional development for healthcare students; however, exposure to ethical dilemmas is common in real clinical settings. Limited evidence exists regarding how nursing and traditional medicine students make ethical decisions during clinical practice and the factors influencing their decision-making in the Mongolian context. Methods: A mixed-methods design was employed. The quantitative phase included 95 undergraduate students undertaking clinical practice. Ethical decision-making was assessed using a 16-item Likert-scale questionnaire based on Rest’s Four-Component Model of Moral Behavior. The qualitative phase involved semi-structured phenomenological interviews with 18 purposively selected students. Quantitative data were analyzed using SPSS version 28.0 and R software, while qualitative data were interpreted using Van Manen’s hermeneutic phenomenological approach. Results: The mean ethical decision-making score was 65.06 ± 9.96, with 66.3% of participants demonstrating a high level of ethical competence. Ethical sensitivity showed the lowest mean score (15.87 ± 3.02) among the four components. Significant positive correlations were identified among ethical sensitivity, moral judgment, moral motivation, and moral character (r = 0.592–0.747, p < .001). Qualitative analysis revealed five major themes influencing ethical decision-making: ethical awareness, fear and lack of moral courage, hierarchical relationships and organizational culture, support systems, and personal moral development. Students frequently reported difficulties in acting on ethical concerns due to perceived authority gradients and evaluation-related pressures. Conclusion Although students demonstrated a generally high level of ethical decision-making competence, deficiencies in ethical sensitivity and institutional support were evident. Strengthening ethics education through case-based learning, simulation training, reflective discussions, and supportive clinical learning environments may enhance students’ ethical decision-making capabilities.