Background Clinical studies, with a proper scientific design, on the impact of disclosing a prognosis on a patient's psychological or physical conditions are rare. We investigated the effect of patient awareness of terminal status on survival and quality of life (QoL) in a palliative care setting. Methods This is a prospective cohort study of patients with terminal cancer. Patients with cancer at a palliative care unit were enrolled consecutively. The patients' awareness of their terminal status was determined using a semistructured interview. Sociodemographic and clinical characteristics, including Eastern Cooperative Oncology Group performance status, depressed mood, and QoL, were investigated. To determine the independent effects of awareness of illness on survival and QoL, multivariate Cox proportional‐hazards regression and multivariate linear regression were used, respectively. Results For the 262 cases analyzed, the median survival time (interquartile range) was 28.5 (15.8–55.3) days, and 76 (29.0%) patients were unaware of their prognosis. Patients who were aware survived for a shorter period than did those who were unaware (HR, 1.44; 95% CI, 1.07–1.93, p = 0.015) after adjusting for clinical variables including physical status and depression. Also, patients who were aware reported lower subjective QoL compared with patients who were unaware in a multivariate linear regression analysis (B, −0.10; 95% CI, −0.17 to −0.03, p = 0.008). Conclusions Awareness of prognosis may negatively impact survival and QoL in terminally ill cancer patients. Therefore, the patient's preference for and individual susceptibility to receiving such information should be assessed carefully before disclosure. Copyright © 2013 John Wiley & Sons, Ltd.