Many deliveries in low income countries still take place at home and the newborns are often not weighed. This community-based study ascertained the incidence of low birthweight (LBW) and compared the birthweight between home- and facility-born neonates in central Nepal. A total of 701 pregnant women from the Kaski district were recruited and interviewed. Birthweights of newborns were measured by pan balance in health facility settings immediately after birth, or by local community health volunteers using colour-coded spring balance within 48 h of home birth. Household follow up of participants were undertaken less than 45 days after delivery to record the weight of their infants. Of the 639 postpartum women who took part in the follow up interview, information on birthweight was available from 605 singleton births. Among them, 65 (10.7 %) were born at home. Overall, the mean birthweight was 3,059 (SD 464) g and incidence of LBW was 16.5 % (95 % CI 13.5–19.5 %). However, the home-born infants reported significantly lower (p = 0.009) mean birthweight (2,920, SD 435 g) than their facility-born counterparts (3,078, SD 461 g). This difference in birthweight remained significant (p = 0.03) after adjustment for maternal and socio-demographic characteristics. Incidence of LBW in central Nepal was quite high. Home-born babies appeared to have lower birthweight and thus their inclusion could provide an accurate estimate of the LBW rate.