Background and Objectives Recent evidence supports a link between caregivers’ health literacy and their children’s health and use of health services. Disruptions in children’s health insurance coverage have been linked to poor health care and outcomes. We examined young children’s Medicaid enrollment patterns in a well-characterized cohort of child/caregivers dyads and investigated the association of caregivers’ low health literacy with the incidence of enrollment gaps. Methods We relied upon Medicaid enrollment data for 1208 children (mean age = 19 months) enrolled in the Carolina Oral Health Literacy project during 2008–09. The median follow-up was 25 months. Health literacy was measured using the Newest Vital Sign (NVS). Analyses relied on descriptive, bivariate, and multivariate methods based on Poisson modeling. Findings One-third of children experienced one or more enrollment gaps; most were short in duration (median = 5 months). The risk of gaps was inversely associated with caregivers’ age, with a 2% relative risk decrease for each added year. Low health literacy was associated with a modestly elevated risk increase [Incidence Rate Ratio (IRR) = 1.17 (95% confidence interval (CI) 0.88–1.57)] for enrollment disruptions; however, this estimate was substantially elevated among caregivers with less than a high school education [IRR = 1.52 (95% CI 0.99–2.35); homogeneity p<0.2]. Conclusions Our findings provide initial support for a possible role of caregivers’ health literacy as a determinant of children’s Medicaid enrollment gaps. Although the association between health literacy and enrollment gaps was not confirmed statistically, we found that it was markedly stronger among caregivers with low educational attainment. This population, as well as young caregivers, may be the most vulnerable to the negative effects of low health literacy.