BACKGROUND: Little is known about the frequency of significant hypoglycemic events in actual practice. Limited health literacy (HL) is common among patients with type 2 diabetes, may impede diabetes self-management, and thus HL could increase the risk of hypoglycemia. OBJECTIVE: To determine the proportion of ambulatory, pharmacologically-treated patients with type 2 diabetes reporting > or =1 significant hypoglycemic events in the prior 12 months, and evaluate whether HL is associated with hypoglycemia. RESEARCH DESIGN: Cross-sectional analysis in an observational cohort, the Diabetes Study of Northern California (DISTANCE). SUBJECTS: The subjects comprised 14,357 adults with pharmacologically-treated, type 2 diabetes who are seen at Kaiser Permanente Northern California (KPNC), a non-profit, integrated health care delivery system. MEASURES: Patient-reported frequency of significant hypoglycemia (losing consciousness or requiring outside assistance); patient-reported health literacy. RESULTS: At least one significant hypoglycemic episode in the prior 12 months was reported by 11% of patients, with the highest risk for those on insulin (59%). Patients commonly reported limited health literacy: 53% reported problems learning about health, 40% needed help reading health materials, and 32% were not confident filling out medical forms by themselves. After adjustment, problems learning (OR 1.4, CI 1.1-1.7), needing help reading (OR 1.3, CI 1.1-1.6), and lack of confidence with forms (OR 1.3, CI 1.1-1.6) were independently associated with significant hypoglycemia. CONCLUSIONS: Significant hypoglycemia was a frequent complication in this cohort of type 2 diabetes patients using anti-hyperglycemic therapies; those reporting limited HL were especially vulnerable. Efforts to reduce hypoglycemia and promote patient safety may require self-management support that is appropriate for those with limited HL, and consider more vigilant surveillance, conservative glycemic targets or avoidance of the most hypoglycemia-inducing medications.