Recent studies suggest a therapeutic effect of psychiatric service dogs for military veterans with posttraumatic stress disorder (PTSD), but are limited by self-report biases. The current study assessed the effect of PTSD service dogs on the salivary cortisol awakening response (CAR) and arousal-related functioning in a population of military veterans with PTSD. Participants included 73 post-9/11 military veterans with PTSD including 45 with a service dog and 28 on the waitlist to receive one. Saliva samples were collected on two consecutive weekday mornings at awakening and 30 minutes later to quantify the cortisol awakening response (CAR) and its area under the curve (AUCi) in addition to standardized survey measures of anxiety, anger, sleep quality and disturbance, and alcohol abuse. There was a significant main effect of having a service dog on both the CAR and the AUCi, with individuals with a service dog exhibiting a higher CAR and AUCi compared to those on the waitlist. Results also revealed that those with a service dog reported significantly lower anxiety, anger, and sleep disturbance as well as less alcohol abuse compared to those on the waitlist, with medium to large effect sizes. Although those with a service dog reported significantly less PTSD symptom severity, CAR was not significantly associated with PTSD symptoms within or across group. In conclusion, results indicate that the placement of a PTSD service dog may have a significant positive influence on both physiological and psychosocial indicators of wellbeing in military veterans with PTSD. Although clinical significance cannot be confirmed, a higher CAR/AUCi among those with a service dog corresponded with higher psychosocial functioning and lower PTSD severity. Future within-subject, longitudinal research will be necessary to determine potential clinical significance and impact of individual differences.