Neolithic tools found in the Kathmandu Valley indicate that people have been living in the Himalayan region for at least nine thousand years. It appears that people who were probably of Tibeto-Burman ethnicity lived in Nepal two and half thousand years ago.

Indo-Aryan tribes entered the valley around 1500 BCE. Around 1000 BCE, small kingdoms and confederations of clans arose. One of the princes of the Shakya (Sakas) confederation was Siddhartha Gautama (563–483 BC), who renounced his royalty to lead an ascetic life and came to be known as the Buddha ("the one who has awakened"). By 250 BCE, the region came under the influence of the Mauryan empire of northern India, and later became a puppet state under the Gupta Dynasty in the fourth century CE. From the late fifth century CE, rulers called the Licchavis governed the area. The Licchavi dynasty went into decline in the late eighth century CE and from 879 was followed by a Newar era, although the extent of their control over the entire country is uncertain. By late eleventh century, southern Nepal came under the influence of the Chalukya Empire of southern India. Under the Chalukyas, Nepal's religious establishment changed as the kings patronised Hinduism instead of the Buddhism prevailing at that time.

Hindu temples in Patan, the capital of one of the three medieval Newar kingdoms.By the early thirteenth century, leaders were emerging whose names ended with the Sanskrit suffix malla ("wrestler"). Initially their reign was marked by upheaval, but the kings consolidated their power over the next two hundred years. By late fourteenth century, much of the country began to come under a unified rule. This unity was short-lived; in 1482 the kingdom was carved into three areas, Kathmandu, Patan, and Bhadgaon, which engaged in petty rivalry for centuries.

In 1765, the Gorkha ruler Prithvi Narayan Shah set out to unify the kingdoms, after first seeking arms and aid from Indian kings and buying the neutrality of bordering Indian kingdoms. After several bloody battles and sieges, he managed to unify Nepal three years later. However, the actual war never took place while conquering the Kathmandu Valley. Prithivi Narayan Shah was unable to defeat the powerful Newar kingdom of Kathmandu. In fact, it was during the Indra Jaatra, when all the valley citizens were celebrating the festival, Prithvi Narayan Shah with his troops captured the valley, virtually without any effort. This marked the birth of the modern nation of Nepal. A dispute and subsequent war with Tibet over control of mountain passes forced Nepal to retreat and pay heavy repatriations to China, who came to Tibet's rescue. Rivalry with the British East India Company over the annexation of minor states bordering Nepal eventually led to the brief but bloody Anglo-Nepalese War (1815–16), in which Nepal defended its present-day borders but lost its territories west of the Kali River, including present day Uttarakhand state and several Punjab Hill States of present day Himachal Pradesh. The Treaty of Sugauli also ceded parts of the Terai and Sikkim to the Company in exchange for Nepalese autonomy.

Nepalese royalty in the 1920s.Factionalism among the royal family led to instability after the war. In 1846, a discovered plot to overthrow Jang Bahadur, a fast-rising military leader, by the reigning queen, led to the Kot Massacre. Armed clashes between military personnel and administrators loyal to the queen led to the execution of several hundred princes and chieftains around the country. Bahadur won and founded the Rana dynasty, leading to the Rana autocracy. The king was made a titular figure, and the post of Prime Minister was made powerful and hereditary. The Ranas were staunchly pro-British, and assisted the British during the Sepoy Rebellion in 1857, and later in both World Wars. In 1923 the United Kingdom and Nepal formally signed an agreement of friendship, truth, and law, in which Nepal's independence was recognised by the UK.

In the late 1940s, emerging pro-democracy movements and political parties in Nepal were critical of the Rana autocracy. Meanwhile, China regained control of Tibet in 1950, making India keen on stability in Nepal. King Tribhuvan offered then Indian Prime Minister accession of Nepal on the condition that he be made President of India. Nehru refused but sponsored KingTribhuvan as Nepal's new king in 1951, and a new government, comprising the Nepali Congress Party. After years of power wrangling between the king and the government, the democratic experiment was dissolved in 1960, and a "partyless" panchayat system was instituted to govern Nepal. In 1990, the "Jana Andolan" (People's) Movement forced the monarchy to accept constitutional reforms and establish a multiparty parliament in May 1991.[4] Krishna Prasad Bhattarai became the Prime Minister, drafted a new Constitution and carried out the democratic elections for the parliament. The Nepali Congress Party won the country's first democratic elections, with Girija Prasad Koirala becoming prime minister.