We investigated the relationship between health literacy (HL) and functioning among older adults with and without chronic musculoskeletal pain (CMP). In a cross-sectional study, we assessed 121 older adults with CMP and 53 without pain using WHODAS 2.0 for functioning and the Newest Vital Sign for HL assessment. Cluster analysis identified groups based on functioning levels. A decision tree model was developed, to account for nonlinear interactions. We found a relationship of inadequate HL with lower functioning in older adults with CMP, particularly when aged over 70 and those younger but with lower education levels. Findings highlight the importance of screening HL among older adults with CMP and considering it for tailoring interventions.