We sought to examine the relationship between health literacy and knowledge of disease among patients with a chronic disease. A total of 653 new Medicare enrollees aged 65 years or older who had at least one chronic disease (115 asthma, 266 diabetes, 166 congestive heart failure, 214 hypertension), completed both the in-person and telephone survey. Health literacy measured by the short test of functional health literacy in adults (S-TOFHLA) and demographic information were collected during the in-person survey. Knowledge of disease was assessed by questions based on key elements in educational materials during a telephone survey. Overall, 24% of patients had inadequate and 12% had marginal health literacy skills. Respondents with inadequate health literacy knew significantly less about their disease than those with adequate literacy. Multivariate analysis indicated that health literacy was independently related to disease knowledge. There are many opportunities to improve patients' knowledge of their chronic disease(s), and efforts need to consider their health literacy skills.