In today's higher education, high quality assessments play an important role. Little is known, however, about the degree to which assessments are correctly aimed at the students’ levels of competence in relation to the defined learning goals. This article reviews previous research into teachers’ and students’ perceptions of item difficulty. It focuses on the item difficulty of assessments and students’ and teachers’ abilities to estimate item difficulty correctly. The review indicates that teachers tend to overestimate the difficulty of easy items and underestimate the difficulty of difficult items. Students seem to be better estimators of item difficulty. The accuracy of the estimates can be improved by: the information the estimators or teachers have about the target group and their earlier assessment results; defining the target group before the estimation process; the possibility of having discussions about the defined target group of students and their corresponding standards during the estimation process; and by the amount of training in item construction and estimating. In the subsequent study, the ability and accuracy of teachers and students to estimate the difficulty levels of assessment items was examined. In higher education, results show that teachers are able to estimate the difficulty levels correctly for only a small proportion of the assessment items. They overestimate the difficulty level of most of the assessment items. Students, on the other hand, underestimate their own performances. In addition, the relationships between the students’ perceptions of the difficulty levels of the assessment items and their performances on the assessments were investigated. Results provide evidence that the students who performed best on the assessments underestimated their performances the most. Several explanations are discussed and suggestions for additional research are offered.