This study explores the potential association of health literacy with type 2 diabetes mellitus (T2DM) self-management and clinical outcomes in the primary care setting of Iran. A total of 347 T2DM patients, mostly female (52.4%), 50 years old or younger (63.1%), unemployed (53.6%) and rural residents (55.6%) participated in this study. Most of the respondents had type 2 diabetes mellitus (T2DM) for 2-5 years (63.1%) and did not receive any T2DM education (52.2%). Approximately 19.0% were hospitalised due to uncontrolled T2DM. Participants mainly found managing T2DM self-management behaviours difficult. Approximately half of the participants had poor fasting blood sugar (FBS) (47.0%) and haemoglobin A1c (HbA1c) (59.4%) control and were overweight or obese (77.6%). The level of health literacy was poor and most of the participants had difficulties reading hospital materials (66.0%), understanding medical materials (62.5%) and engaging in medical conversations (63.7%). Health literacy could predict 22.5% variance in difficulty of T2DM self-management and 3.8-23.3% variance in T2DM clinical outcomes after controlling for sociodemographic factors. Participants with higher health literacy were more likely to find managing T2DM less challenging and their clinical outcomes were within the normal range. This implies that interventions targeting patient's health literacy can be a promising tool for addressing the burden of T2DM.