Under the new constitution adopted in 2015, Nepal embraced the federal structure of government comprising seven provincial and 753 local governments, each with their own legislative, judicial, and executive powers. Nepal’s agriculture sector provides livelihoods to about 60% of the population. However, its bottlenecks are rooted in poor implementation of agricultural policies and plans, low levels of investment, uncertain political commitment and weak governance, especially a lack of an effective service delivery mechanism to farmers. This study analyzed the impacts of federalism on the institutional arrangements and governance of the agriculture sector through both review of literature and field-level information gathering, particularly focusing on extension service delivery to farmers in Province 2. The findings highlight the impacts of federalism on agricultural governance mainly in functional overlapping, resource allocation, priority setting, coordination, human resource management, and extension service delivery. The lack of coordination and collaboration between the three tiers of government and the line agencies results in less-effective extension service delivery, especially in providing integrated, specialized technical services to farmers which is the main responsibility of local governments. Lack of poor understanding of governance, institutionalization, and human resources management is found to be one of the most serious problems with the provincial and local governments. The consequences are that despite a huge potential to improve service delivery leading to increased production and a market surplus, the province remains food-deficient and lacks food and nutrition security. The study recommends a strong political commitment, better policy and institutional coordination and coherence, and good governance in all tiers of government by providing demand-driven agricultural services leading to higher cropping intensity and productivity potential for which it is well recognized.