Nepal’s 2015 federal constitution was the outcome of a long conflict stemming from a historically centralized polity that failed to address political and economic exclusion of certain ethnicities, castes, classes and regions. The constitution reflected a new configuration of power, as disadvantaged groups mobilized and challenged existing institutions, with the Madhesh region’s identity-based movement in 2007 being a key driver. While the constitution empowered new regional political actors and made identity-based politics more salient, the implementation of federal structures remains contested, with the evolution of Nepal’s federalism, especially in Madhesh province, depending on the changing organizational capabilities and bargaining power of various groups. Tracking these dynamic political settlements will be crucial for assessing prospects for inclusive development and the deepening of federalism in Nepal’s complex transition.