Peripheral vestibular disorder is a common condition among older adults that can impair balance, functional independence, and quality of life. This study aimed to investigate the effects of adding cognitive challenges to Cawthorne–Cooksey exercises on motor, cognitive, and psychological outcomes in older adults with peripheral vestibular disorder. This quasi-experimental study employed a pretest–posttest design involving 40 older adults with peripheral vestibular disorder. Participants were randomly assigned to either a Cawthorne–Cooksey exercise group with cognitive challenges (n = 20) or a Cawthorne–Cooksey exercise group without cognitive challenges (n = 20). Both groups completed an 8-week intervention consisting of three 45-minute sessions per week. Assessments were conducted before and after the intervention using the Berg Balance Scale (BBS), the computerized Stroop Test, the Wisconsin Card Sorting Test (WCST), and the Fear of Falling Avoidance Behavior Questionnaire (FFABQ). Results: Mixed-design analysis of variance revealed significant improvements in balance in both groups following the intervention, with no significant between-group differences. However, participants in the Cawthorne–Cooksey exercise group with cognitive challenges demonstrated significantly greater improvements in cognitive performance, as assessed by the Stroop Test and WCST, as well as significantly greater reductions in fear of falling avoidance behavior measured by the FFABQ, compared with those performing Cawthorne–Cooksey exercises alone. Conclusion: Incorporating cognitive challenges into Cawthorne–Cooksey exercises may provide additional benefits beyond balance improvement by enhancing cognitive function and reducing fear of falling avoidance behavior in older adults with peripheral vestibular disorder. This combined intervention may serve as an effective rehabilitation strategy for this population.