Prior research has shown that individuals tend to make norm-based (deontological) moral choices more frequently when observed by real humans. Our aim in this study was to explore whether this phenomenon extends to virtual observers. Sixty-two participants (39 women, 22 men and 1 non-binary) with mean age of 24.95 (SD = 5.70, age range 19–44) were presented with textual moral dilemmas, both in the presence of a virtual observer and alone. Prior to making the moral judgment, Skin Conductance Response (SCR) was recorded upon presentation of the moral dilemma in order to assess potential modulation of moral decisions by physiological arousal. Moral judgments were modulated by both the physiological arousal immediately preceding the decision and the directness of the dilemma (a personal dilemma involves direct harm; an impersonal one does not). Higher arousal was associated with more frequent utilitarian choices in personal dilemmas, but no effect in impersonal choices. We did not observe any impact of the virtual character’s presence on the moral decisions, thus demonstrating the potential bounds within which a virtual character can shape human behavior.