Understanding factors determining the distribution of species is a key requirement for protecting diversity in a specific area. The aim of this study was to explore the factors affecting diversity and distribution of species of birds on different forested hills in central Nepal. The area is rich in species of birds. Because the area is characterized by steep gradients, we were also interested in the importance of altitude in determining the diversity and species composition of the bird communities. We assessed bird diversity and species composition based on point observations along a gradient of increasing altitude in two valleys (Kathmandu and Palung) in central Nepal. Data on environmental variables were also collected in order to identify the main determinants of bird diversity and species composition of the bird communities. We recorded 6522 individual birds belonging to 146 species, 77 genera and 23 families. Resident birds made up 80% (117 species) of the total dataset. The study supported the original expectation that altitude is a major determinant of species richness and composition of bird communities in the area. More diverse bird communities were found also in areas with steeper slopes. This together with the positive effect of greater heterogeneity suggests that forests on steep slopes intermixed with patches of open habitats on shallow soil at large spatial scales are more important for diverse bird communities than more disturbed habitats on shallow slopes. In addition, we demonstrated that while different habitat characteristics such as presence of forests edges and shrubs play an important role in driving species composition, but they do not affect species richness. This indicates that while habitat conditions are important determinants of the distribution of specific species, the number of niches is determined by large scale characteristics, such as landscape level habitat heterogeneity and altitude. Thus, to protect bird diversity in the mid-hills of central Nepal, we should maintain diverse local habitats (viz. forest, shrubs, open land, etc.) but also make sure the natural habitats on steeper slopes with large scale heterogeneity are maintained.