The word "Nepal" is believed by scholars to be derived from the word "Nepa:" which refers to the Newar Kingdom, the present day Kathmandu Valley. With Sanskritization, the Newar word Nepa became Nepal. 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 Kirant ethnicity lived in Nepal 2,500 years ago. Nepal is also mentioned in Hindu scriptures such as the Narayana Puja and the Atharva Siras (800-600 BC). Around 1000 BC, small kingdoms and confederations of clans arose in the region. From one of these, the Shakya confederation, arose a prince named Siddharta Gautama (563–483 BC), who later renounced his royalty to lead an ascetic life and came to be known as the Buddha ("the enlightened one"). 7th Kirata king Jitedasti was on throne in Nepal valley at the time. By 250 BC, the region came under the influence of the Mauryan empire of northern India, and later became a vassal state under the Gupta Dynasty in the fourth century AD. In the fifth century, rulers called the Licchavis governed the majority of its area. There is a good and quite detailed description of the kingdom of Nepal in the account of the renowned Chinese Buddhist pilgrim monk, Xuanzang, dating from c. 645 AD. The Licchavi dynasty went into decline in the late eighth century and was followed by a Newari era, from 879, although the extent of their control over the entire country is uncertain. By the 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 12th 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 and ruled over the next 200 years; by the late 14th century, much of the country began to come under a unified rule. This unity was short-lived; in 1482 the region was carved 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 Kathmandu Valley 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.