There is currently no comprehensive tool to assess the functional health literacy (HL) skills of chronic airway disease (CAD) patients. The purpose of this article is to describe the development of a new HL measure, the Vancouver Airways Health Literacy Tool (VAHLT). The tool was developed through the following phases: (1) Tool conceptualization, consisting of: (A) a systematic review (SR), (B) focus group sessions with CAD patients to understand barriers and facilitators to CAD management, (C) a survey with key-informants to obtain strategies to mitigate self-management barriers and validate patient-derived topics, and (D) respiratory physicians’ review of the topics; (2) Scenario and item development; and (3) Tool testing and content validation. The SR identified the lack of a valid HL measurement tool for CAD patients. Patients provided an initial shortlist of disease-related self-care topics. Key-informants helped to finalize topics for inclusion. Respiratory physicians and patients contributed to the development of a scenario-based questionnaire, which was refined during three rounds of testing to develop a 44-item instrument comprising nine self-management passages. We highlight the holistic process of integrating information from the literature with knowledge gained from key stakeholders into our tool framework. Our approach to stakeholder engagement may be of interest to researchers developing similar tools, and could facilitate the development and testing of HL-based interventions to ultimately improve patient outcomes and reduce the burden on the healthcare system.