Originating from the field of physical education, physical literacy is an individual disposition that accentuates the importance of lifelong physical activity. Sport education is a sport-based physical education curriculum and instructional model that has been espoused to operationalize physical literacy. The purpose of this study was to examine the effects of sport education within a compulsory physical education program on university students' physical literacy and physical activity levels. A parallel-group single-blind cluster-randomized research design was used to examine the effect of a 10-lesson sport education intervention in physical education on students' physical activity and physical literacy from baseline through post-intervention and follow-up phases. A total of 372 participants completed all phases of data collection. Results showed increases in the affective and social domains of physical literacy across both groups. Findings also revealed a greater increase in daily self-reported physical activity levels and a reduction in perceived disempowering motivational climate in the sport education group at the follow-up phase. With a limited controlling and ego-evolving climate, sport education was found to be beneficial in developing the behavioral domain of undergraduate student physical literacy.