Nepal is one of the rapidly urbanizing countries in south Asia. This trend of rapid urbanization and ongoing political change has created several challenges to the planned urban development in Nepal. This chapter presents a picture of urban development and growth in Nepal and identifies key challenges why the existing model of urbanization has not delivered results that are commonly expected through urban transformation. Unclear and inconsistent policy regime, poor municipal services, urban disaster risk and environmental vulnerability, managing the politics of slum, and transforming informal economy are the five key urban challenges for the inclusive urbanization that are discussed in this chapter. The chapter concludes with brief recommendations for each challenge.