Cognitive impairment (CI) has been recognized as one of the core multiple sclerosis (MS) symptoms that profoundly impact lives of people with MS (PwMS). Clinical trials have begun to focus on cognition as a primary or secondary outcome, but translating improvements in cognitive testing scores to functioning in the real world is difficult. Performance-based functional assessments and virtual reality (VR) assessments, which incorporate real-world challenges, have been proposed as a way to better assess functional cognition (i.e., cognitive performance and its impact on real-life cognitive functioning of PwMS) and could address the difficulty in evaluating the impact of a treatment on real-world functioning. In this narrative review, we identify and summarize some of the promising recent research applications of performance-based functional assessments and VR tools to assess functional cognition in MS. Overall, most of the studies suggest that functional and VR assessments can detect cognitive differences between people with and without MS and between PwMS with and without CI. Furthermore, performance on some of the functional and VR assessments was associated with performance on standard cognitive assessments. However, developing any guidelines on how to implement these assessments in clinical practice is difficult because of the relatively small sample size across these studies. Performance-based functional and VR assessments represent an innovative approach to increasing sensitivity of how cognitive impairments/abilities present in the daily life of PwMS. More studies, with a larger sample size, robust research methods, and pre- and post-treatment assessments, are warranted to validate relevant, accessible functional and VR assessments before implementing these assessment approaches in clinical practice.