Agriculture is the backbone of Nepalese economy, and serves as the basis of livelihood and subsistence for the majority of its people. Despite its importance, the agricultural sector faces several challenges and limitations when it comes to meeting the demands of its growing population. This paper analyses the biophysical and socio-economic conditions of Nepal’s agricultural sector, food security, livelihood issues, environmental sustainability, and opportunities for improvement. It is a matter of great concern that in a predominantly agricultural country, 43 districts out of 75 (especially in the hills and mountains) are food-deficient. Food production and distribution are highly skewed. Subsistence farming, fragmented/small-sized farms, poor technical know-how, land degradation, and erratic climatic events (e.g. floods, droughts, water limitation) are the key factors that lead to low agricultural productivity. The key factors causing food insecurity, especially in remote mountain districts, are an increasing population, remoteness (causing lack of transportation and distribution), low income-generating opportunities, and lack of access to food. On the other hand, rapid urbanization, indiscriminate use of agro-chemicals, and poor technological know-how has led to environmental problems such as chemical contamination, soil/air/water pollution, and land degradation. There is definite potential for improvement when it comes to agricultural productivity and environmental sustainability in Nepal. However, effort and resources must focus on priority programs such as land consolidation, crop diversification, soil and water conservation practices, infrastructure development (e.g. using the country’s vast water resources for irrigation), rural electrification and roads, and capacity building for farmers (i.e. through training, education, and pro-poor agricultural research and extension). Nonetheless, the rate of population growth must be checked in order to maintain the carrying capacity of the country.