Introduction Environmental challenges are part of everyday life for most domestic animals. However, very little is known about how animals cope emotionally and physiologically with cumulative challenges. This experiment aimed to determine the impact of long-term exposure to environmental challenges on the affective state and hypothalamic-pituitary-adrenal (HPA) axis responses to a subsequent additional acute shearing challenge. Methods Sheep were exposed to either a long-term environmental challenge (rest disruption and individual housing) in order to induce chronic stress (chronic stress group) or control conditions (group housing in a field with low stress handling and daily feed rewards, control group). Judgement and attention bias were assessed as measures of the emotional state following several days of the challenge or control treatment (pre-shearing tests). In addition, the responsiveness of the HPA-axis was evaluated using a combined Corticotropin Releasing Hormone and Arginine Vasopressin (CRH/AVP) challenge. Finally, all animals were exposed to an acute shearing challenge, then judgement bias (post-shearing test), HPA-axis and internal body temperature responses were determined. Results In the pre-shearing judgement bias test, the chronic stress group slightly increased optimism compared to the control treatment. In the attention bias test, the chronic stress group showed reduced vigilance behaviour towards a predator threat and a quicker approach to the food compared to the control treatment. The chronic stress group also had lower plasma ACTH concentrations in response to the CRH/AVP challenge compared to the control group, no differences in cortisol concentrations were found. In the post-shearing judgement bias test, differences in optimism were no longer evident between the chronic stress and control groups. Plasma ACTH concentrations and body temperatures showed a greater increase in response to shearing in the chronic stress group compared to the control group. Conclusion Our results suggest that long-term exposure to challenges biased cognitive measures of the affective state towards an increased expectation of a reward and reduced attention towards a threat. The exaggerated ACTH responses in the chronic stress group may be indicative of HPA-axis dysregulation. Despite a period of challenge exposure in the chronic stress group, judgement bias responses to the shearing challenge were similar in the chronic stress and control groups; the reasons for this need further investigation. The altered affective state together with signs of HPA-axis dysregulation may indicate an increased risk of compromised welfare in animals exposed to long-term environmental challenges.