The subjective experience of time, although fundamental for our everyday functioning, doesn't always match the ticking of the clock. Indeed, it is well reported in the literature that time is a sort of illusion whose perception is modulated by our emotions. The detailed link between emotional experiences and time perception remains unclear. It has been argued that different valenced emotional events affect our level of arousal and impact our time-tracking ability. However, there is no agreement on the level at which this disruption occurs. Is the emotional event impacting how much we subjectively feel activated, or does it trigger a specific physiological response for different valences? And which of those contributes to temporal distortion? The present study was designed to disentangle the contribution of arousal (psychological and physiological) and valence in temporal distortions, using Positive, Negative, and Neutral stimuli. We asked University students to complete a series of temporal tasks including Finger Tapping, Retrospective Judgement, and Time Production while watching emotionally salient video in an Immersive Virtual Reality Environment. Before and after the presentation of each video participants’ subjective perception of both activation (arousal) and pleasantness (valence) was assessed with Self-Assessment Manikin. Furthermore, cardiac and electrodermal activity were recorded as a measure of physiological activation. The results showed that the negative video was either perceived as more activating either elicited a stronger physiological response. Further, while watching a negative video participants over-produced time. The results confirm, from a psychophysiological perspective, the effect of arousal on time perception.