Objective Depression is an easily treatable yet frequently underdiagnosed affliction in palliative population with deleterious implications on their quality of life. It has been studied poorly in developing countries like India. Methods A cross‐sectional study was done with 234 consenting subjects attending a palliative care unit. Patient Health Questionnaire‐9 (PHQ‐9), World Health Organization Quality of Life (WHOQOL‐BREF), and semi‐structured proforma were used by trained nonmental health professional to collect data. Results The prevalence of major depression was 70%. Being a resident of nuclear family (p = .004), absence of insurance coverage (p = .01), presence of financial difficulties (p = .002), and absence of cancer recurrence (p = .001) were significantly associated with major depression in univariate analysis. In multivariate analysis, presence of financial difficulties (OR = 3.9; 95% CI, 2.00‐7.61) and absence of health insurance (OR = 1.92; 95% CI, 1.02‐3.7) were independently associated with major depression. The presence of depression showed significant negative correlation with physical health (p = .03), psychological health (p = .002), and environmental (p = .002) domains of the WHOQOL‐BREF. Conclusion This study brings to the fore the high rates of depression and its negative impact on the quality of life of terminally ill cancer patients. An improvement in their quality of life requires measures to reduce the rate of underdiagnosed psychiatric morbidities, especially in those who are financially burdened and lack insurance coverage.