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Background: Globally, more than 40% of all under-five child deaths occur during the neonatal period. Neonatal mortality in Nepal is 33 per 1,000 live births, eight times that of developed regions. So there is an urgent need for neonatal care to prevent these deaths, in order to achieve the fourth Millennium Development Goal by 2015. Objective: The objective of this article was to review the major challenges in improving neonatal health in Nepal and to identify possible keys to achieving Millennium Development Goal 4. Methodology: Key literature searches were conducted of electronic databases and relevant web-sites. Furthermore, personal contact with the local population in Nepal and hand searching of key journals was performed. Results: In Nepal, there exist harmful cultural practices during pregnancy and after childbirth. Under utilization of basic maternal and neonatal healthcare, limited health infrastructure with a shortage of trained health care professionals, poverty, illiteracy, women's low status in the society and political instability are major challenges facing neonatal health in Nepal. Conclusions: In order to improve neonatal health in Nepal, it is imperative to focus on biomedical, nursing and social interventions, in addition to family centred care. Health promotion regarding the practices to be adopted during pregnancy and after childbirth, improving health infrastructure and integrating skilled delivery personnel into local health services are important measures. Longer-term solutions could include: improving mother’s nutrition and women’s position in society, increasing the proportions of girls attending school, as well as involving men in neonatal health matters.