This paper generalizes the application bit-interleaved coded modulation with iterative decoding (BICM-ID) using signal space diversity (SSD) over <i>keyhole</i> Nakagami-<i>m</i> fading channels. The tight union bound on the asymptotic error performance is first analytically derived. The near-optimal rotation matrix with respect to both the asymptotic performance and the convergence behavior is then determined. In particular, it is demonstrated that the suitable rotation matrix is the one that has 1) all entries equal in magnitude, 2) a high diversity order, and 3) a large minimum product of the ratios between squared distances to the power <i>m</i> and log-squared distances to the power <i>m</i> of the rotated constellation scaled by factors of signal-to-noise ratio (SNR) and the parameter <i>m</i> . Various analytical and simulation results show that by employing SSD with a sufficiently large dimension, the error performance can closely approach that over an additive white Gaussian noise (AWGN) channel, even in the worst case of keyhole fading.