The population of Nepal was recorded to be about 25 million as of July 2002. Eighty-six percent of Nepalese follow Hinduism, while eight percent follow Buddhism and three percent follow Islam. The population comprises various groups of different races, which are further divided into different castes. The distinction in caste and ethnicity is understood more easily with a view of customary layout of the population.

Some of the main groups are such: Gurungs and Magars who live mainly in the western region; Rais, Limbus and Sunwars who live in the eastern mid hills; Sherpas, Manangpas and Lopas who live near the mountains of Everest, Annapurna and Mustang respectively; Newars who live in and around the capital valley of Kathmandu; Tharus, Yadavas, Satar, Rajvanshis and Dhimals who live in the Terai region; and Brahmins, Chhetris and Thakuris generally spread over all parts of the country.

Nepali is the official language of the state, spoken and understood by 100 percent of the population. Multiple ethnic groups speak more than a dozen other languages in about 93 different dialects. Many in government and business offices speak English. It is the mode of education in most private schools of Kathmandu and some other cities.

For centuries the Kingdom of Nepal remained divided into many principalities. Kirats ruled in the east, the Newars in the Kathmandu Valley, while Gurungs and Magars occupied the mid-west. The Kirats ruled from 300 BC and during their reign, emperor Ashoka arrived from India to build a pillar at Lumbini in memory of Lord Buddha. The Kirats were followed by the Lichchhavis whose descendants today are believed to be the Newars of the Kathmandu Valley. During this period, art thrived in Nepal and many of the beautiful woodcarvings and sculptures that are found in the country belong to this era. With the end of the Lichchhavi dynasty, Malla kings came to power in 1200 AD and they also contributed tremendously to Nepal's art and culture. However, after almost 600 years of rule, the kings were not united among themselves and during the late 18th century, Prithvi Narayan Shah, King of Gorkha, conquered Kathmandu and united Nepal into one kingdom. Recognizing the threat of the British Raj in India, he dismissed European missionaries from the country and for more than a century, Nepal remained in isolation. During the mid-19th century Jung Bahadur Rana became Nepal's first prime minister to wield absolute power. He set up an oligarchy and the Shah kings remained figureheads. The Ranas were overthrown in a democracy movement of the early 1950s.

Most of the festivals celebrated in Nepal have religious significance. The dates of most festivals are fixed by famous astrologers after consulting the lunar calendar. The biggest and most popular festivals are: Dashain, a celebration of Goddess Bhagabati's victory over evil Mahisashur; and Tihar, a celebration of lights dedicated to Goddess Laxmi.