Perovskite-type KMgF3, which represents a distinct class of multifunctional materials, has drawn immense interest in the advanced technological fields due to its various attractive properties. However, these properties are strongly influenced by the presence of various vacancy point defects in the host crystal structure. This drives us to gain a detailed knowledge of the defect chemistry in KMgF3 by investigating geometry, electronic structure, defect formation energies, and charge transition levels. To achieve reliable results, we have adopted hybrid density functional calculations. To find out the stable growth condition for all possible vacancy defects and vacancy cluster defects in KMgF3, calculations of defect formation energies under different chemical potential range have been carried out. Among all the vacancy defects considered in this study, the calculated formation energy for VMg in a −2 charge state is found to be a more negative value as the Fermi energy level approached toward the conduction band minimum irrespective of the chemical potential range. The present study explored the role of different vacancy defects in creating impurity states in the band gap region by detailed analysis of electronic structure in each case. It has been observed that the impact of anion vacancy and their aggregation on the electronic structure of KMgF3 is much more prominent than that of cation vacancy. The electrical and optical properties of KMgF3 in the presence of various defects have been described on the basis of calculated thermodynamic and optical charge transition levels, respectively. It has been revealed that the cation vacancy defects are not likely to form deep defect states, while anion vacancy and their aggregation act as deep donor defects. The mixed cluster vacancy of K and F pair behaves differently with respect to Mg and F pair in the optical property. The cation vacancies have hardly any contribution to the observed optical spectrum, which is consistent with experimental observation. Thus, an unambiguous and ultimate clarification of the fundamental absorption and emission processes in KMgF3 has been accomplished in the present study.