The secretary of state has dismissed a report by her own government which said customs posts would return along the Irish border in the event of the UK leaving the European Union.
The post-Brexit assessment from the Cabinet Office this week sparked concern among border businesses who fear a clampdown on the free movement of people and goods.
The report also raised questions about Ireland and Britain's 'common travel area' and the impact its removal would have on cross-border trade and co-operation.
But Theresa Villiers said it was a "scare story" to claim free travel arrangements would be abandoned in the event of a Brexit.
Speaking to The Irish News for the first time since the EU referendum campaign officially got underway, the eurosceptic Tory MP insisted movement between the north and Republic would not be affected.
"It really is a scare story to say suddenly we would have to rip up the common travel area arrangements if we left the EU," she said.
"The idea of returning to the security checks of the Troubles is just not credible.
"In terms of the customs issue I’m sure with common sense and a willingness to make it work it’s going to be possible to ensure we have a system that doesn’t cause inconvenience at the border, that does enable goods and people to pass through as is the case in countries on the edge of Europe."
The secretary of state said if the UK voted to leave the EU there would be a period of negotiations and "time to reflect on any implications for the border here".
Ms Villiers was also sceptical of claims that both Northern Ireland and Britain's relationship with the Republic would be damaged by Brexit.
She said it was in everyone's interests to continue the "strong relations", which are arguably at their healthiest since partition.
"I’m not aware of any kind of threat by the Irish government saying they would suddenly say they want to go back to the bad old days of tension between the UK and Ireland if we were to leave the EU," she said.
"I think it’s in everyone’s interests that we continue to work on economic matters and of course on Northern Ireland matters. I don’t see why that should stop after a Brexit – that really does feel like project fear."
The MP for Chipping Barnet, who was also an MEP for six years, also claimed it was possible that the level of farm subsidies – currently worth more than £280m a year to the north's farmers – could increase if the UK left the EU.
"It’s entirely possible that with the money we save – at least £9bn if we were to leave the EU – would actually give us more money arguably for farm subsidies," she said.
"It's crucial that farm support continues but as for precise levels, that would be determined in the future but we have the option of not only continuing at current levels but potentially increasing farm subsidies."
Responding to criticism that her role as secretary of state conflicted with campaigning for Brexit, Ms Villiers pointed out that she was on the same side of the debate as Stormont First Minister Arlene Foster.
She said it was "perfectly possible" to remain in her post despite indications that a clear majority of north's citizens opposed Brexit.
"It can’t be unreasonable to be a Secretary of State for Northern Ireland to take a position on an issue which happens to be shared by the largest party in the assembly," she said.
