Bias in perceptual decision making can have both sensory and decisional origins. These competing sources of bias are typically seen as static and stable over time. However, human behavior is dynamic and constantly adapting. Yet, it remains unclear if the competition between sensory and decisional biases changes over time too. We addressed this question by tracking the dynamics of sensory and decisional biases during a task that involves a visual illusion. Observers saw multiple pairs of peripherally presented faces that induce a strong illusion making the faces appear distorted and grotesque. The task was to judge whether one of the last two faces had true physical distortion (experimentally introduced in half of the trials). Initially, subjects classified most faces as distorted as exemplified by a liberal response bias. However, over the course of the experiment, this response bias gradually disappeared despite the fact that the distortion illusion remained equally strong, as demonstrated by a separate subjective rating task without artificially distorted faces. The results suggest that the sensory bias was progressively countered by an opposite decisional bias. This transition was accompanied by an increase in reaction times and a decrease in confidence relative to a condition that does not induce the visual illusion. All results were replicated in a second experiment with inverted faces. These findings demonstrate the existence of dynamic competition between sensory and decisional biases that together determine how humans make perceptual decisions.