We assessed changes in HIV prevalence and risk behaviours among young key populations in Nepal. A total of 7505 participants (aged 16–24 years) from key populations who were at increased risk of HIV infection (2767 people who inject drugs (PWID); 852 men who have sex with men/transgender (MSM/TG); 2851 female sex workers (FSW) and 1035 male labour migrants) were recruited randomly over a 12-year period, 2001–2012. Local epidemic zones of Nepal (Kathmandu valley, Pokhara valley, Terai Highway and West to Far West hills) were analysed separately. We found a very strong and consistent decline in HIV prevalence over the past decade in different epidemic zones among PWID and MSM/TG in Kathmandu, the capital city, most likely due to a parallel increase in safe needle and syringe use and increased condom use. A decrease in HIV prevalence in 22 Terai highway districts, sharing an open border with India, was also consistent with increased condom use among FSW. Among male labour migrants, HIV prevalence was low throughout the period in the West to Far West hilly regions. Condom use by migrant workers involved with FSW abroad increased while their condom use with Nepalese FSW declined. Other risk determinants such as mean age at starting first injection, injection frequency, place of commercial sex solicitation, their mean age when leaving to work abroad did not change consistently across epidemic zones among the young key populations under study. In Nepal, the decline in HIV prevalence over the past decade was remarkably significant and consistent with an increase in condom use and safer use of clean needles and syringes. However, diverging trends in risk behaviours across local epidemic zones of Nepal suggest a varying degree of implementation of national HIV prevention policies. This calls for continued preventive efforts as well as surveillance to sustain the observed downward trend.