This paper critically reviews the challenges Nepal is facing as it struggles to transform from insurgency to a peaceful and stable democratic society. Examining Nepal’s political constellation, the course toward structural change becomes evident, especially efforts to solve the country’s fundamental problems. There is a promising window of opportunity to institutionalize constitutional reforms, create new state institutions, and establish the rule of law and democratic pluralism. The Constituent Assembly (CA) should employ a bottom-up model of engaging citizens in the practice of democracy, but it is not certain whether the new constitution will change Nepali power dynamics or facilitate a democratic constitutionalism and consensual model of democracy that can end instability and violence. The victory of liberal democracy appears far more fragile and incomplete than many had initially expected. This is precisely what the first CA, elected in 2008 for a two year term, failed to accomplish in the repeatedly extended tenure of a total of four years. The monarchy proved ineffective, as it was an outdated feudal institution that utilized divide-and-conquer politics to keep itself in power while the state crumbled around it. Unfortunately, it was replaced by a system based on corruption and cronyism.