This article analyzes the complex relationship between foreign aid, agricultural policy, and sustainable agricultural development in Nepal from historical, policy, and practical perspectives. Although planned agricultural development with foreign aid has been practiced since the 1950s, the desired results have not been achieved due to the lack of policy formulation and implementation in line with domestic needs, resources, and local realities. After the implementation of the multi-party system and federalism, the influence of donor agencies increased further, promoting liberalization, the use of hybrid seeds, chemical fertilizers, and modern technology. Although these practices seemed easy in the short term, the study shows that in the long term, self-reliance was weakened, making the agricultural system import-oriented and dependent. Although donors showed activity in paper progress, budget spending, and project operation, it is noted that they did not show sufficient interest in the real problems of farmers, local needs, and long-term improvement of the agricultural system. The problem of a large share of the agricultural budget being lost along the way, of grants and assistance not reaching the targeted farmers, and of the high profits of intermediaries has been widely recognized. The social, economic, and environmental impacts are mixed—while there are positive aspects such as roads, markets, mechanization, and public awareness, adverse effects such as overdependence, erosion of local knowledge, excessive use of chemicals, loss of biodiversity, and control by multinational companies dominate. The need for local government autonomy, internal capacity building, transparency, and locally diverse policies, so that effective foreign aid and sustainable agricultural development are possible on this basis.