This comprehensive study has sought to assess the effectiveness of federalism and decentralization policies in Nepal. It specifically examines how these policies enhance local autonomy to meet community needs, improve governance, prevent the influence of elite groups, encourage inclusive democracy, alleviate ethnic and cultural conflicts, and foster social unity. To achieve this, the research collected data using a questionnaire distributed to 350 participants for analysis. The findings have underscored federalism as a suitable framework for empowering local communities to meet their unique demands. Insights derived from this study have offered valuable guidance for policymakers aiming to enhance local governance in Nepal. Moreover, it has emphasized the necessity of tailored policies and the establishment of robust communication and information systems to support effective implementation of federalism and decentralization. While federalism and decentralization in Nepal have been found to be aimed to address longstanding governance challenges and promote inclusivity, perspectives among stakeholders have been identified to vary widely. Challenges such as capacity building at the local level, resource allocation, intergovernmental relations, and ensuring equitable representation have been explored to remain key issues that stakeholders continue to navigate and discuss. While there is optimism about the potential benefits of federalism and decentralization in Nepal, there have been found to be also valid concerns and challenges that need to be addressed to realize these expected outcomes. The ongoing dialogue among stakeholders have been known to be crucial for shaping policies and practices that can maximize the positive impacts of federalism while mitigating potential risks. By focusing on these strategies, Nepal can enhance its federalism and decentralization efforts, promoting effective governance, inclusive development, and sustainable peace and stability across the country.