Objectives: Family context is recognised as a critical determinant of children’s health, with family functioning identified as a significant influence on children’s oral health outcomes. However, its association with oral health literacy (OHL) remains unclear. This study aims to examine the relationship between family functioning and OHL in 12-year-old Malaysian schoolchildren. Methods: A cross-sectional study was conducted among 375 12-year-old schoolchildren from public primary schools in Malaysia, selected through multistage random sampling. Two validated instruments were administered in a classroom setting: the Malaysian version of the Oral Health Literacy Adult Questionnaire (OHL-AQ) and the Malay version of the FACES-IV package to evaluate family functioning. Results: Only 28% of schoolchildren demonstrated adequate OHL. Higher mean scores were observed for balanced cohesion (25.9, SD = 4.01) and balanced flexibility (26.09, SD = 4.46) compared to unbalanced family functioning scales. Weak but positive correlations were found between OHL and balanced cohesion (r = 0.242), balanced flexibility (r = 0.324), and family satisfaction (r = 0.292). Rigidity, an unbalanced scale, also showed a positive correlation (r = 0.231). Predictors of high OHL included rigid family functioning, lower family communication, greater family satisfaction, and being female. Conclusion: Participants demonstrated low OHL levels, with some associations observed between OHL and family functioning. This study highlights the value of family-centred approaches, underscoring the need for policies and interventions that promote positive family dynamics to support OHL in children.