Drought vulnerability analysis at the household level can help people identify livelihood constrains and potential mitigation and adaptation strategies. This study used meteorological and household level data which were collected from three different districts (Kavrepalanchowk, Sindhuli, and Saptari) in the Koshi River Basin of Nepal to conduct a drought vulnerability analysis. We developed a model for assessing drought vulnerability of rural households based on three critical components, i.e., exposure, sensitivity, and adaptive capacity. The results revealed that Saptari (drought vulnerability index, 0.053) showed greater vulnerability to drought disasters than Kavrepalanchowk (0.014) and Sindhuli (0.007). The most vulnerable district (Saptari) showed the highest exposure, the highest sensitivity, and the highest adaptive capacity. Kavrepalanchowk had the middle drought vulnerability index with middle exposure, low sensitivity, and middle adaptive capacity. Sindhuli had the lowest vulnerability with the lowest exposure, the lowest sensitivity, and the lowest adaptive capacity. On the basis of the results of the vulnerability assessment, this paper constructed livelihood adaptation strategies from the perspectives of households, communities, and the government. Many households in Kavrepalanchowk and Sindhuli significantly depend on agriculture as their main source of income. They need to implement some strategies to diversify their sources of income. In addition, the most important livelihood adaptation strategy for Saptari is improving water conservancy facilities to facilitate the allocation of water.