This Occasional Paper analyses the process and modalities that led to the federalisation of Nepal’s unitary state. It explores the historical circumstances in which demands for federalism emerged and the federal settlement enshrined in Nepal’s new Constitution promulgated on 20 September 2015. The question of federalism gained prominence in Nepal’s public discourse during the ‘People’s War’, the ten-yearlong armed insurgency (1996-2006) launched by the Communist Party of Nepal (Maoist) to overthrow the government. In fact, the drafting of Nepal’s seventh constitution was part of the peace process that began in 2006. The new dispensation was expected to reflect the political commitment to ‘building a New Nepal’ – an inclusive and democratic polity – through a radical programme of state restructuring. The Maoists, together with various ethno-cultural and regional groups, argued that the 1990 Constitution, which was to re-democratize the country after thirty years of Panchayat monarchical autocracy (1960-1990), inadequately addressed – if not reinforced – patterns of exclusion of many groups on the basis of class and/or identity and they saw territorial autonomy for ethno-linguistic and regional groups as the key solution to the country’s rampant discrimination.