Objectives: This study, utilizing data from the 2021 Korean Community Health Survey (KCHS), aimed to investigate the role of health literacy in mitigating depression among individuals with chronic diseases, particularly focusing on how sociodemographic and subjective factors influence this relationship. Methods: With a sample of 77,133 subjects primarily dealing with hypertension and diabetes, the study employed various analytical tools to identify factors associated with an increased risk of depression. Results: These factors included marital status (OR 1.47, 95% CI 1.40–1.54), residential district (OR 1.43, 95% CI 1.39–1.50), unemployment (OR 1.47, 95% CI 1.41–1.54), enrollment in the national basic living security program (OR 1.50, 95% CI 1.40–1.62), unmet healthcare needs (OR 2.32, 95% CI 2.14–2.51), fair subjective health status (OR 1.74, 95% CI 1.63–1.90), poor subjective health status (OR 4.33, 95% CI 4.05–4.63), and stress (OR 4.56, 95% CI 4.36–4.77). Notably, individuals with higher health literacy showed a significantly lower susceptibility to depression (OR 0.74, 95% CI 0.68–0.75), underscoring the importance of health literacy as a critical factor in mental health outcomes. Conclusions: Such initiatives could serve as effective preventive measures against depression in this vulnerable population.