The purpose of this study to investigate the effect of liquidity risk on financial performance of commercial banks in Nepal. This study applies the Pooled Ordinary Least Square estimator. Balanced panel data of ten commercial banks over the period of 2011/2012 to 2020/2021 were used for analysis. In the study ROA and ROE are uses as bank performance measurement tools and capital ratio, investment ratio, liquidity management ratio, bank size and assets quality are used as explanatory variables. The results showed that bank size, liquidity management ratio and capital ratio has been found a positive effect on banks financial performance and investment ratio, and assets quality has negative effect on banks financial performance. Thus, the study concludes that liquidity risk is an important predictor for the financial performance of the commercial banks. Therefore, the success of the banks in terms of profitability depends on liquidity risk management.