This study demonstrated that substantial proportions of patients with newly diagnosed advanced lung cancer and their caregivers had misunderstandings about their prognosis. Accurate perceptions of prognosis, which are indispensable in the delivery of effective care, were associated with elevated levels of anxiety and depression in both patients and caregivers, warranting psychosocial care and support for them immediately after diagnosis. Inaccurate perceptions of prognosis in patients were associated with better emotional well-being and lower lung cancer-specific symptom burden. Illness understanding in caregivers was associated with patients' physical and mental status. Those findings provide insight into how they obtain accurate illness understanding.