The ability to detect and respond to others’ distress is supported by the dynamic interaction of cognitive, affective, and psychophysiological processes that allow the perception of distress in one individual to directly change the affective state of another, a phenomenon referred to as emotion contagion. While research over the past three decades has a number of mechanisms supporting emotion contagion, a considerable amount of work will be necessary in order to fully understand the inter-individual and psychophysiological factors that moderate the “contagiousness” of emotions across different context. In this dissertation, I explore the influence of observing others’ distress on psychophysiological processes and potential moderating factors. In Study 1, I investigated the role of individual differences in empathy on the psychophysiological response to viewing others experiencing and recovering from stress. Results show that viewing stress in others leads to distinct physiological changes in the observer based, independent of empathy levels, even when viewing individuals in the stress recovery condition. Findings also suggest that emotional judgements of others are related to cardiac reactivity, such that heart rate deceleration in observers was positively related to their judgements of anxiety levels of stressed individuals. In Study 2, I examine how individuals respond when observing a third-party be socially rejected. Results from this study illustrate that individuals who observe someone undeservingly reject another individual, will punish the rejecter by administering significantly louder sound blasts and choosing to give them significantly less money within the context of a dictator game, consistent with models of altruistic punishment. Furthermore, altruistic punishment was positively moderated by the participant’s history of being exposed to bullying, and cardiac reactivity while viewing the bullying episode. Taken together, these findings contribute to our understanding of how psychophysiological states of one individual can affect those of another, and how contextual and psychological variables help explain variation in how individuals respond to distress in others.