Nepal is one of the least developed countries with per capita GDP US $536, life expectancy at birth 68 years and adult literacy rate is 60 percent in 2010. Nepal spent over 5 percent of GDP in health sector and out of pocket expenditure is the largest source of financing. There is lack of cost containment mechanism for improving provider performance in terms of efficiency and quality of services. It has brought up the need for efficiency measurement and regular monitoring of the system. This study is the first attempt to estimate technical and scale efficiency of district hospitals in Nepal using Data Envelopment Analysis methodology. The study has shown a considerable variation in hospitals efficiency across the country.