Dengue is an emerging disease in Nepal and was first observed as an outbreak in nine lowland districts in 2006. In 2010, however, a large epidemic of dengue occurred with 4,529 suspected and 917 serologically-confirmed cases and five deaths reported in government hospitals in Nepal. The collection of demographic information was performed along with an entomological survey and clinical evaluation of the patients. A total of 280 serum samples were collected from suspected dengue patients. These samples were subjected to routine laboratory investigations and IgM-capture ELISA for dengue serological identification, and 160 acute serum samples were used for virus isolation, RT-PCR, sequencing and phylogenetic analysis. The results showed that affected patients were predominately adults, and that 10% of the cases were classified as dengue haemorrhagic fever/ dengue shock syndrome. The genetic characterization of dengue viruses isolated from patients in four major outbreak areas of Nepal suggests that the DENV-1 strain was responsible for the 2010 epidemic. Entomological studies identified Aedes aegypti in all epidemic areas. All viruses belonged to a monophyletic single clade which is phylogenetically close to Indian viruses. The dengue epidemic started in the lowlands and expanded to the highland areas. To our knowledge, this is the first dengue isolation and genetic characterization reported from Nepal.