Design AtlasA standard HUD is an overlay — pinned to screen coordinates, staying in the same spot no matter where the camera looks. Diegetic UI does the opposite: it turns that information into an object that actually exists in the world — a holographic display on a character's forearm, a fuel gauge on a dashboard, a sign on a wall — visible only when the camera looks at it, and subject to perspective and lighting like anything else in the scene.
The payoff is immersion. With no numbers or icons floating over the screen, the information blends into the scene without registering as "UI" at all. The tradeoff is that checking it costs more — the player has to actually look toward it or approach it, unlike an overlay that's always right there.
That's why most real games use a hybrid rather than going fully diegetic: health stays as an always-visible overlay, while secondary information — ammo count, status effects — goes diegetic (a magazine readout built into the weapon model, say). Making everything diegetic slows down exactly the checks that need to be instant, and gets in the way of play.
When to use
Secondary information in immersion-heavy genres — survival, horror, simulation. Keep must-check-instantly info like health or threats on the overlay.