Abstract Background Loneliness has become a significant public health concern for older people. However, little is known about the association of loneliness, loneliness literacy, and changes in loneliness during the COVID-19 pandemic with mental well-being. The purpose of this study was to explore whether loneliness literacy is related to a lower risk of loneliness, increased loneliness during the COVID-19 pandemic, and improved mental well-being for community-based older adults. Methods A telephone survey was conducted to collect data from older adults aged 65 years or older in Taiwan (n = 804). Loneliness, change in loneliness during COVID-19, and loneliness literacy were the main variables. Mental well-being was assessed by depressive symptoms and life satisfaction. Related factors included personal level (demographics, health conditions, health behaviors, and problem-focused/ emotion-focused coping strategies), interpersonal level (marital status, living arrangements, social support, social participation, leisure activities, and social interactions during COVID-19), and societal level (areas and regions) factors. Results Four dimensions of loneliness literacy were identified by factor analysis: self-efficacy, social support, socialization, and in-home support. Self-efficacy and in-home support were related to lower loneliness. Lower self-efficacy, higher social support, and higher socialization were related to changes (increases) in loneliness during COVID-19. In-home support may prevent depressive symptoms, while self-efficacy was beneficial for better life satisfaction. In addition, emotion-focused coping may increase loneliness during COVID-19, while satisfaction with family support would be a protective factor against loneliness. Conclusion Loneliness literacy is related to loneliness and increased loneliness during the COVID-19 pandemic. Building up an age-friendly community with embedded services/information and learning positive coping and mental resilience strategies are suggested.