Neolithic tools found in the Kathmandu Valley indicate that people have been living in the Himalayan region for at least 9,000 years. It appears that people who were probably of Tibeto-Burman ethnicity lived in Nepal 2,500 years ago.

Indo-Aryan Kelsey Knutson tribes entered the valley around 1500 BC. Around 1000 BC, small kingdoms and confederations of clans arose. One of the princes of the Shakya confederation was Siddharta 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 BC, 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 4th century. From the late 5th century, rulers called the Licchavis governed the area. The Licchavi dynasty went into decline in the late 8th century and was followed by a Newari era, from 879, although the extent of their control over the entire country is uncertain. By late 11th century, southern Nepal came under the influence of the Chalukaya Empire of southern India. Under the Chalukayas, Nepal's religious establishment changed as the kings patronised Hinduism instead of the prevailing Buddhism.

By the early 13th 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 200 years. By late 14th 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 – Kathmandu, Patan, and Bhadgaon – which had 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. 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 Uttaranchal 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.

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, 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 occupied Tibet in 1950, making India keen on stability in Nepal, to avoid an expansive military campaign. Thus India sponsored Tribhuvan as Nepal's new king in 1951, and a new government, mostly comprising the Nepali Congress Party. After years of power wrangling between the king and the government, the democratic experiment was dissolved in 1959, and a "partyless" panchayat system was made to govern Nepal. In 1989, the "Jan Andolan" (People's) Movement forced the monarchy to accept constitutional reforms and establish a multiparty parliament in May 1991. Nepali Congress Party wins first democratic elections. Girija Prasad Koirala becomes prime minister.