Health literacy is an important priority in health care delivery, but its effect on clinical outcomes remains incompletely elucidated. This observational cohort study examined the association of health literacy with medication knowledge, adherence, and adverse drug events among cognitively intact veterans older than 65 years old who were taking 5 or more medications and who were enrolled in a Veterans Administration primary care clinic. Health literacy was determined by the Rapid Estimate of Adult Literacy in Medicine. Medication knowledge and adherence were assessed by clinical pharmacist interview and refill data. Adverse drug events were determined by interview and chart review at 3 and 12 months. The 310 subjects had a mean age of 74 years, 99% were White, and 97% were male. Percentage of medications known was 29% for the low health literacy group versus 49% (marginal) and 56% (adequate), p < .001. Known medication purposes were lower in the lower health literacy group (49% vs. 71% vs. 74%; p < .001). Health literacy was not associated with medication adherence: the low health literacy group took 84% of medications by label instructions compared with 80% (marginal) and 77% (adequate), p = .14; or with adverse drug events at 1 year (48% vs. 33% vs. 40%; p = .30). Patients with lower health literacy have poorer medication knowledge but not lower adherence or increased adverse drug events.