Background: The improvement following arthroscopic rotator cuff repair (ARCR) is associated with biopsychosocial factors, including emotional well-being, health beliefs, and patient engagement. Objective: This prospective study aimed to investigate the relationship between musculoskeletal health literacy (MHL) and physical and psychological outcomes in patients with ARCR. Methods: A total of 44 patients were divided into two groups: low (n = 24) and high (n = 20) MHL using the Turkish Health Literacy Scale-32. The patients received a standardized rehabilitation program composed of 30 treatment sessions (five days per week) lasting between 45 and 60 min. The primary outcomes included pain (Visual Analog Scale) and disability-function (Shoulder Pain and Disability Index and The Disabilities of the Arm, Shoulder and Hand Questionnaire). Secondary outcomes included pain catastrophizing (Pain Catastrophizing Scale-PCS), anxiety/depression (Hospital Anxiety and Depression Scale), kinesiophobia (Tampa-Scale of Kinesiophobia-TSK), and quality of life (12-Item Short-Form Health Survey). The outcomes were assessed pre- and post-treatment. Results: Both MHL groups showed significant improvements in pain, disability, and function over time (p < 0.001), with no group-by-time interaction for physical outcomes. However, higher MHL was associated with greater improvements in PCS (p = 0.029) and TSK scores (p = 0.041), indicating significant group-by-time interactions for psychological outcomes. Conclusion: Higher MHL was associated with improved psychological outcomes, but not physical outcomes, after ARCR. The MHL may be more strongly related to psychological adaptation rather than physical recovery. Interventions targeting MHL may have the potential to influence rehabilitation outcomes. Further randomized trials are required to assess the clinical benefits of MHL-targeted educational interventions in terms of causality.