In the end it comes down to confidence and self assured-ness - which only comes from practise and getting used to playing in a group situation with or without an audience present.

Hard as it may be, you have to bite the bullet and get up in front of people and just do it, mistakes and all. 9 times out of 10, the audience won't catch your mistakes unless by your body language, facial expressions, etc..you clue them in. You make a mistake? Play the mistake twice...then it looks intentional.

Another good psychological ploy is to assume the audience ISN'T listening to you. You're working on the presumption that they are. Try working it the other way. Tune them out and just focus on you and your fellow musicians...and entertain yourselves.

Don't try to do anything too flashy at first (because the audience doesn't care how many or few notes your solos contain) or what contortions you have to go through to make a given series of chord formations.

Keep it simple, keep it tasty and keep it completely managable. In time, you WILL get past this and then when the confidence comes, you can have fun with it and with the audience...and then when you can be relaxed and in control on stage, you can get as fancy as you want.

Once you can get past being intimidated by an audience, you can do anything. Believe in yourself and your abilities.