Aging is a major challenge facing modern society and has attracted global attention. Studies have provided some initial evidence that health literacy plays a role in determining frailty; however, most of these studies have used small convenience samples of individuals recruited from geographically limited areas, thus limiting the generalizability of their findings. The present study explored the relationships among health literacy, exercise, and frailty in Taiwanese older adults by using the data of a national population-based survey. We retrieved data from the Taiwan Longitudinal Study on Aging, a population-based survey. We gathered the 2015 data on the age, sex, education level, marital status, exercise habits, and activities of daily living (ADLs) of each eligible respondent. We evaluated the respondents' health literacy by using a nine-item health literacy scale and categorized their health literacy level as low, medium, or high. Frailty was diagnosed according the Fried criteria. Our final sample consisted of 7702 community-dwelling older adults (3630 men and 4072 adults). Of these, 25.3% had low health literacy. The proportion of respondents who had two or more disabilities in terms of ADLs or instrumental ADLs was higher among the women (36.4% and 12.6%, respectively), and regular exercise was more common among the men (19.6%). Frailty was more prevalent among the women; the prevalence of frailty among the male and female respondents was 4.5% and 8.1%, respectively. High health literacy and regular exercise were protective factors for frailty. According to our results, poor health literacy is a risk factor for prefrailty and frailty, and regular exercise is significantly negatively associated with prefrailty and frailty. Additional studies are necessary to define practical strategies for reducing the risks of disability and death for older adults with low health literacy who do not exercise regularly, thereby improving their quality of life.