Background & Objectives: The present study was undertaken to assess the impact of Artificial Intelligence (AI) tools on academic performance and psychological well-being among undergraduate students in selected colleges of Kollam district. Methodology: A quantitative research approach with a descriptive research design was used. A sample of 100 undergraduate students was selected from Younus College of Engineering using a non-probability convenience sampling technique. Data were collected through structured questionnaires for measuring AI tool usage, academic performance, and psychological well-being. For the analysis descriptive and inferential statistics were used. Results: The findings revealed that majority of students that is 58% had a high level of AI tool usage, 26% had moderate usage, 13% had very high usage, and 3% had low usage. Regarding the academic performance, 63% achieved excellent level and 37% an average level. Psychological well-being was moderate in 56%, mild in 31%, good in 12%, and poor in 1%. Statistical analysis shows that there is a significant weak positive correlation between AI tool usage and academic performance (r = 0.240, p = 0.016) and a significant weak negative correlation between AI tool usage and psychological well-being (r = -0.270, p = 0.007). Conclusion: The study highlights that the usage of AI tools enhance academic performance of students and higher usage of AI tools is reduces the psychological well-being of the student which emphasizing the need for balanced digital habits.