Objectives: To develop and evaluate the applicability of a health literacy instrument in patients with diabetes by measuring their ability to understand diabetes-related words. Methods: Diabetes-related words were extracted from the Korean Diabetes Association’s website and literature reviews. In the first phase, three nursing researchers evaluated 2,661 diabetes-related words based on graded lexical vocabularies and what patients need to know about self-care, and the narrowed them to 255 words. In the second phase, a content validity assessment was conducted by an expert panel. In the third phase, the remaining 25 words were administered to 200 conscientious with type 2 patients aged 40 years old and using a Gallup survey from March 3 to 17, 2016 in Seoul, Korea. Descriptive analysis and Rasch analysis were performed to test psychometric properties. Results: The mean score was 21.47 with a range of 0 to 25. The Cronbach’s α was .92. The health literacy instrument using diabetes-related words had a ceiling effect response. Conclusions: Diabetes-related words are useful and reliable items for testing the health literacy of diabetes patients. Future study is needed to develop and validate health literacy measures for diabetic patients.