Thyroid dysfunction is a major public health problem among Nepalese population. Hence the study is aimed to find out the prevalence of thyroid dysfunction and to investigate the effect of it in serum lipids. Serum fT3, fT4, TSH, total cholesterol (TC), low density lipoprotein (LDL), high density lipoprotein (HDL) and triglycerides (TG) were measured using standardized assays. Overall thyroid dysfunction was detected in 25.7% of the study population with the higher prevalence among females. The distribution of overt hypothyroidism, subclinical hypothyroidism, overt hyperthyroidism and subclinical hyperthyroidism were 3.7%, 14.1%, 3.3% and 4.6% respectively. There was a positive association between hypothyroidism and TC>200, LDL>130 and TG>200mg/dl; 48.4% of hypothyroid patient had hypercholesterolemia and 32.3% had hypertriglyceridemia. The mean TC, LDL and TG levels were increased progressively with the increase in the serum TSH. It was noteworthy in this study that even a slight increase in serum TSH (between 6.2-10 mIU/L) showed significant increase in serum lipid level. However there was no association among patients with hyperthyroidism and control group.