Despite the importance of health literacy for health promotion, Nepalese undergraduate students are largely unaware of its importance. The present study assessed the health literacy levels of undergraduate health sciences students and explored various socio-demographic, clinical, and health information-related factors associated with health literacy at Pokhara University in the Kaski district of western Nepal. A cross-sectional web-based observational study was conducted among 406 undergraduate students university students from five faculties at the School of Health and Allied Sciences affiliated with Pokhara University. Data on socio-demographic information, clinical characteristics, and sources of health information were collected. Health literacy was assessed using the 44-item measure that captures the concept of health literacy across nine distinct domains. Associated factors were examined using a one-way analysis of variance followed by stepwise backward multiple linear regression analysis at the level of significance of 0.05. The mean score for the health literacy questionnaire was 3.13 ± 0.26. Outcomes of multivariable analyses demonstrated various factors associated with health literacy scores, including age (β= 0.10; p=0.001), physical exercise (β= − 0.13; p < 0.001), monthly household income (β= 0.05; p=0.029), and routine health checkup (β = − 0.14; p < 0.001). The study showed that there is a need to understand and address sociodemographic factors and clinical factors, including age, physical exercise, monthly household income, and routine health checkups to improve health literacy levels among undergraduate students in western Nepal. More research, including longitudinal studies, is needed to better understand factors that influence health literacy among undergraduate students in Nepal.