One of the major constraints in rural development for most of the developing countries is lack of effi-cient and affordable energy technology. Adopting a new technology in providing basic energy needs inan effective manner is an important issue for the rural people where the majority of farmers are living insubsistence level. Biogas technology can play a vital role in enhancing the socio-economic status ofsuch farmers by providing environmentally friendly and economically beneficial energy from animaldung, a by-product of farming system with livestock. Hill farming in Nepal is integrated with livestockand dung is easily available at farmyard. This paper will highlight the problems caused by the lack ofefficient and affordable energy and its effect in the rural livelihood, and contribution of biogas technolo-gy in overcoming them, in the hill areas of Nepal.