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Nepal is first mentioned in the late Vedic text, Atharvaveda Parisista as a place exporting blankets. In Samudragupta's Allahabad inscription it is mentioned as a bordering country. The 'Skanda Purana' has a separate chapter known as 'Nepal Mahatmya', which "explains in more details about the beauty and power of Nepal".
Around 500 BC, small kingdoms and confederations of clans arose in the southern regions of Nepal. From one of these, the Shakya polity, arose a prince named Siddhartha Gautama (traditionally dated 563 – 483 BC), who later renounced his status to lead an ascetic life and came to be known as the Buddha ("the enlightened one"). It is believed that the 7th Kirata king, Jitedasti, was on the throne in the Nepal valley at the time. By 250 BC, the southern regions came under the influence of the Mauryan Empire of Northern India, and Nepal later on became a nominal vassal state under the Gupta Empire in the fourth century. Beginning in the 3rd century, rulers called the Licchavis governed the Kathmandu Valley and surrounding central Nepal.
The Licchavi dynasty went into decline in the late eighth century, probably due to Tibetan dominance, and was followed by a Newari or Thakuri era, from 879, although the extent of their control over the country is uncertain. In the 11th century it seems to have included the Pokhara area.
In the early 12th century, leaders emerged in far western Nepal whose names ended with the Sanskrit suffix malla ("wrestler"). These kings consolidated their power and ruled over the next 200 years, until the kingdom splintered into two dozen petty states. Another Malla dynasty, beginning with Jayasthiti, emerged in the Kathmandu valley in the late 14th century, and much of central Nepal again came under a unified rule. However, in 1482 the realm was divided into three kingdoms: Kathmandu, Patan and Bhaktapur.
After centuries of petty rivalry between the three kingdoms, in the mid-18th century, Prithvi Narayan Shah, a Gorkha King, set out to unify the kingdoms. Seeking arms and aid from India, and buying the neutrality of bordering Indian kingdoms, he embarked on his mission in 1765. After several bloody battles and sieges, he managed to unify the Kathmandu Valley and surrounding territory three years later in 1768. However, an actual battle never took place to conquer the Kathmandu valley; it was taken over by Prithvi Narayan and his troops without any effort, during Indra Jatra, a festival of Newars, when all the valley's citizens were celebrating the festival. This event marked the birth of the modern nation of Nepal.
In 1788 the Nepalese overran Sikkim and sent a punitive raid into Tibet. Kangra in northern India was also occupied by the Nepalese. In 1809, Ranjit Singh the ruler of the Sikh state in the Punjab, had intervened and drove the Nepalese army east of the Satluj River.
At its maximum extent, Greater Nepal extended from the Tista River in the east, to Kangara, across the Sutlej River in the west as well as further south into the Terai plains and north of the Himalayas than at present. A dispute and subsequent war with Tibet over the control of mountain passes forced the Nepalese to retreat and pay heavy reparations to Tibet.
Rivalry between Nepal and the British East India Company over the annexation of minor states bordering Nepal eventually led to the Anglo-Nepalese War (1815–16). At first the British underestimated the Nepalese and were soundly defeated until committing more military resources than they had anticipated needing. They were greatly impressed by the valour and competence of their adversaries. Thus began the reputation of "Gurkhas" as fierce and ruthless soldiers. The war ended in the Treaty of Sugauli, under which Nepal ceded recently captured portions of Sikkim and lands in Terai as well as the right to recruit soldiers.
Factionalism inside the royal family had led to a period of instability. In 1846 a plot was discovered revealing that the reigning queen had planned to overthrow Jung Bahadur Rana, a fast-rising military leader. This 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. Jung Bahadur Rana emerged victorious and founded the Rana lineage.
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 them during the Indian Sepoy Rebellion in 1857 (and later in both World Wars). Some parts of the Terai Region were given back to Nepal by the British as a friendly gesture, because of her military help to sustain British control in India during the Sepoy Rebellion. In 1923, the United Kingdom and Nepal formally signed an agreement of friendship, in which Nepal's independence was recognized by the UK.
Slavery was abolished in Nepal in 1924. Nevertheless debt bondage even involving debtors' children have been a persistent social problem in the Terai.
In the late 1940s, newly emerging pro-democracy movements and political parties in Nepal were critical of the Rana autocracy. Meanwhile, with the invasion of Tibet by China in the 1950s, India sought to counterbalance the perceived military threat from its northern neighbour by taking pre-emptive steps to assert more influence in Nepal. India sponsored both King Tribhuvan (ruled 1911–55) as Nepal's new ruler in 1951 and a new government, mostly comprising the Nepali Congress Party, thus terminating Rana hegemony in the kingdom.
After years of power wrangling between the king and the government, King Mahendra (ruled 1955–72) scrapped the democratic experiment in 1959, and a "party less" panchayat system was made to govern Nepal until 1989, when the "Jan Andolan" (People's Movement) forced King Birendra (ruled 1972–2001) to accept constitutional reforms and to establish a multiparty parliament that took seat in May 1991. In 1991–92, Bhutan expelled roughly 100,000 Bhutanese citizens of Nepali descent, most of whom have been living in seven refugee camps in eastern Nepal ever since.
In 1996, the Communist Party of Nepal (Maoist) started a bid to replace the royal parliamentary system with a people's socialist republic by violent means. This led to the long Nepal Civil War and more than 12,000 deaths. On 1 June 2001, there was a massacre in the royal palace. King Birendra, Queen Aiswarya, and seven other members of the royal family were killed. The perpetrator was Crown Prince Dipendra, who committed suicide (he died 3 days later) shortly thereafter. This outburst was alleged to have been Dipendra's response to his parents' refusal to accept his choice of wife. Nevertheless there are speculation and doubts among Nepalese citizens about who was responsible.
Following the carnage, Birendra's brother Gyanendra inherited the throne. On 1 February 2005, Gyanendra dismissed the entire government and assumed full executive powers to quash the violent Maoist movement, but this initiative was unsuccessful because a stalemate had developed where the Maoists were firmly entrenched in large expanses of countryside yet could not dislodge the military from numerous towns and the largest cities. In September 2005, the Maoists declared a three-month unilateral ceasefire to negotiate.
In response to the 2006 democracy movement King Gyanendra agreed to relinquish sovereign power to the people. On 24 April 2006 the dissolved House of Representatives was reinstated. Using its newly acquired sovereign authority, on 18 May 2006 the House of Representatives unanimously voted to curtail the power of the king and declared Nepal a secular state, ending its time-honoured official status as a Hindu Kingdom. On 28 December 2007, a bill was passed in parliament to amend Article 159 of the constitution – replacing "Provisions regarding the King" by "Provisions of the Head of the State" – declaring Nepal a federal republic, and thereby abolishing the monarchy. The bill came into force on 28 May 2008.