Diegetic (from film theory) describes elements that exist within the story or game world. In game UI, a diegetic element is one the player character could plausibly perceive — a health bar painted on a character’s armour, ammo displayed on a weapon’s side panel, a map existing as a physical object in-world. Non-diegetic elements (traditional HUDs, pause menus) float outside the game world as pure interface (CRE342 Lectures, see source-cre342-lectures).
The diegetic/non-diegetic distinction is a design axis, not a quality judgment — both have appropriate uses. Immersive sims often favour diegetic UI to maintain presence; action games often favour non-diegetic for clarity.
Related: ui-design, presence-and-immersion, game-feel, narrative-design