Health literacy is considered to be an emerging determinant of health behaviors and outcomes. The underlying mechanisms linking health literacy to diabetes self-management are currently unclear. This study assessed a mediation model consisting of a direct pathway between health literacy and self-management, and indirect pathways via social isolation only, self-efficacy only, and social isolation and self-efficacy serially in people with type 2 diabetes. A cross-sectional design was employed, and a total of 524 participants were recruited from outpatient clinics of multi-institutions from June 2020 to February 2021. The mediation model was analyzed using the PROCESS macro on SPSS with bootstrap bias-corrected 95% confidence intervals (CIs) with 10,000 bootstrapping iterations. Health literacy positively affected self-management. The estimated indirect effect of health literacy on self-management via social isolation was significant, at 0.018 (95% CI = 0.004–0.036). The indirect effect via self-efficacy was estimated at 0.214 (95% CI = 0.165–0.266). The indirect effect via social isolation and self-efficacy serially was 0.013 (95% CI = 0.006–0.023). The findings of this study suggest that clinical practice can be improved through more comprehensive diabetes self-management interventions that promote all of the components of health literacy, social contacts/networks, and self-efficacy in particular.