Background Health literacy (HL) and patient activation (PA) are necessary foundations to engage patients in self-management intervention. Each concept plays a unique role in improving access to the effective self-management of chronic disease. In this cross-sectional study, we examined the levels and determinants of HL and PA among the multi-morbid COPD patients in Nepal. Methods We conducted interviews with a simple random sample of 238 multi-morbid COPD people from July 2018 to January 2019. The questionnaire included sociodemographic profiles, five domains of the Health Literacy Questionnaire (HLQ), 13-item Patient Activation Measure (PAM) and patient's illness perception by Brief Illness Perception Questionnaire (BIPQ). Multivariable logistic regression was used to examine the associations. Results Most people with COPD had low health levels across each of the five domains of the HLQ. The proportion of people with low literacy level across each of the domains was: (i) feeling understood and supported by healthcare providers (79.0%), (ii) having sufficient information to manage my own health (76.5%), (iii) social support for health (77.3%), (iv) ability to find the good health information (75.2%), and (v) understand the health information well enough to know what to do (74.8%), respectively. The majority of patients also reported low levels of patient activation (level 1: 81.5%; level 2: 11.8%), with only 6.7% (level 3: 5%; level 4: 1.7%) reported higher patient activation level. We found significant associations between poor HL levels in the HLQ domains and having no education, being female or from Indigenous and Dalits communities, and having a monthly family income of less than USD176. Having no education and poor illness perception were significantly associated with poor activation level on PAM scale. Conclusion A high proportion of multi-morbid COPD peoples had low levels of HL and were less activated than what would be required to self-manage COPD. These were in turn associated with socioeconomic factors and poor illness perception. The findings from this study are being used to design a COPD self-management program tailored to the low health literate population.