Rural communities, which depend predominantly on natural resources, are increasingly vulnerable as global climate change makes the weather and extreme weather events more unpredictable. To formulate appropriate policy measures to address their livelihood challenges, assessment of local vulnerability is important. In this study, the vulnerability of Chepang communities in Nepal was analyzed using data collected from 221 households from four villages across four districts. The analysis was based on indices constructed from selected indicators measuring exposure, sensitivity, and adaptive capacity. The indicators were weighted using Principal Component Analysis. Inter-village analysis of the vulnerability index indicated that exposure in a locality is modified by the inherent adaptive capacity of the households, and this determines overall vulnerability. Inter-household analysis of vulnerability indicated that poor households with low adaptive capacity were vulnerable irrespective of their location. The availability of non-farm livelihood opportunities and community access to formal/vocational education and skill development training will reduce household vulnerability to climate change. Policy interventions should focus on improving the adaptive capacity of households, prioritizing financial and human assets.