Poor health is unpredictable and, in circumstances where a significant fraction of the household expenditure is required for purchasing health care, can have disruptive impact on household budgets and an impoverishing effect on living standards. This article provides an account of a recently-completed representative cross-sectional survey on out-of-pocket costs for reproductive and sexual health (RSH) care in urban Nepal. The study, which is the first of its kind, was conducted in nine towns of Nepal covering about 50% of the total urban population of the country. The survey used a two-stage cluster sample design and face-to-face structured interviews were carried out with 1,669 respondents from 992 households. Overall, 1.1% of total annual household expenditure was spent on RSH excluding HIV/AIDS care and 2.9% was directed towards costs associated with HIV/AIDS care. The costs related to emergency obstetric care were the highest; 9% of the total health care expenditure went on the payments for obstetric care alone. The distribution of out-of pocket expenditure by the major components of RSH care services shows that almost half of all out-of-pocket payments were spent on maternal care (46%), followed by STIs (27%) and RTIs (13%) respectively. Out-of-pocket expenditure on family planning and related care was modest, accounting for about 7% of overall RSH spending. This is attributed to the supply of contraceptives and related services free-of-charge mainly from public facilities. A high share of out-of-pocket expenditure to total health financing is considered as a major concern in any health financing system, and in Nepal this can be seen as a major impediment to achieving poverty reduction and the Millennium Development Goals.