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Abstract Background Health literacy has been linked to health outcomes across population groups around the world. Nepal, a low income country, experiences the double burden of highly prevalent communicable as well as non-communicable diseases. The World Health Organization (WHO) has positioned health literacy as a key mechanism to meet the health-related Sustainable Development Goal (SDG3). However, there is little known about the status of health literacy in developing countries such as Nepal. This paper aims to review the potential of health literacy to address SDG3 in Nepal. Methods A rapid review was conducted using the knowledge to action evidence summary approach. Articles included in the review were those reporting on barriers to health care engagements in Nepal published in English language between January 2000 and December 2015. Results Barriers for healthcare engagement included knowledge and education as strong factors, followed by culture, gender roles, quality of service and cost of services. These barriers influence the Nepalese community to access and engage with services, and make and enact healthcare decisions, not only at the individual level but at the family level. These factors are directly linked to health literacy. Health literacy is a pivotal determinant of understanding, accessing and using health information and health services, it is important that the health literacy needs of the people be addressed. Conclusion Locally identified and developed health literacy interventions may provide opportunities for systematic improvements in health to address impediments to healthcare in Nepal. Further research on health literacy and implementation of health literacy interventions may help reduce inequalities and increase the responsiveness of health systems which could potentially facilitate Nepal to meet the sustainable development goals. While there is currently little in place for health literacy to impact on the SDG3, this paper generates insights into health literacy’s potential role.