Here are some tips, many of which were passed on to me from fellow players.
1. Pray! No kidding! "Be careful for nothing; but in every thing by prayer and supplication with thanksgiving let your requests be made known unto God." Philippians 4:6
2. Take a deep breath and focus on what your doing. Don't worry about who is watching.
3. Don't lock your legs...stand relaxed.
4. Realize that probably no one in the audience can play a hammered dulcimer.
5. If you make a mistake, keep going. Try not to make a face or correct the mistake. Don't worry about it or focus on the mistake, but rather focus on the song--what you need to play next.
6. Make sure your dulcimer is in tune.
7. Play for a tape recorder.
8. Practice where people can hear you.
9. Play at casual settings where people can hear you but aren't necessarily watching you play (picnics, the park, flea markets, etc.). This is much easier than playing for a secure audience.
10. The fear of playing is not the fear of making a mistake but from how you think people will respond to your mistake. Give the people you play for the benefit of the doubt and trust them to be as caring and appreciative as you are. The audience does not care as much as you do, but will simply enjoy hearing you play.
11. Since most people are not familiar with the instrument, many will not even notice when you hit a wrong note.