It has been theorized that physical literacy is associated with physical activity and health. The purpose of this study is to investigate the associations between physical literacy and health, and if this relationship is mediated by moderate-to-vigorous physical activity (MVPA). Two hundred and twenty-two children (113 girls, 10.7 ± 1.0 years old) participated in this cross-sectional study. A physical literacy composite score was computed from measures of PLAYfun, PLAYparent, and PLAYself. Physical activity was measured over seven days with accelerometers, expressed as MVPA (min/day). Health indicators included: body composition (percent body fat), aerobic fitness (treadmill time and 60s heart rate recovery), resting systolic blood pressure, and quality of life. Physical literacy was significantly associated (p < 0.001) with percent body fat (R2 = 0.23), treadmill time (R2 = 0.21), 60 s heart rate recovery (R2 = 0.36), systolic blood pressure (R2 = 0.11), and quality of life (R2 = 0.11). The relationships between physical literacy and aerobic fitness, but not other health indicators, were directly mediated by MVPA. Higher physical literacy in children is associated with favorable health indicators, and the relationships between physical literacy and aerobic fitness were influenced by MVPA. Future work should examine these relationships longitudinally and determine if changes in physical literacy leads to changes in health.