Background During infectious disease outbreaks, healthcare workers are at high risk of infection, infecting others, and psychological distress. This study aimed to determine the prevalence of stress and anxiety in physicians during the COVID-19 outbreak in the Iraqi Kurdistan Region and assess their associated factors. Methods This cross-sectional study was carried out in Erbil, Iraqi Kurdistan Region, from March 28 to April 15, 2020. An online self-administered survey questionnaire was used to collect data from physicians working in specialized COVID-19 centers and other healthcare facilities. The level of stress was measured based on the 10-items Perceived Stress Scale. The level of anxiety was measured based on the 7-item Generalized Anxiety Disorder scale. Results A total of 370 participants responded to the perceived stress component of the survey, of whom 57 (15.4%) had low perceived stress, 249 (67.3%) had moderate stress, and 64 (17.3%) had high stress. Being female was significantly associated with having moderate/high stress (adjusted odds ratio (AOR) = 2.40 (95% CI 1.31–4.39)). A total of 201 participants responded to the generalized anxiety disorder component of the survey, of whom 19 (9.5%) had no anxiety, 57 (28.4%) had mild anxiety, 79 (39.3%) had moderate anxiety, and 46 (22.9%) had severe anxiety. Working in COVID-19 centers (AOR = 2.23 (95% CI 1.02–4.86)) and being general practitioners (AOR = 4.16 (95% CI 1.14–15.14)) were significantly associated with having moderate/severe anxiety. Conclusion A considerable proportion of physicians experience stress and anxiety during the COVID-19 outbreak in Iraqi Kurdistan region. Generalists and those in special COVID-19 units report the greatest anxiety. There a need to establish mechanisms to reduce the risks of stress and anxiety among physicians. Mental health coping interventions through counseling should be based on COVID-19 protocol guidelines. Interventions should also emphasize physicians’ ability to work safely and efficiently in providing care to the patients.