Since the Indo-Pacific Strategy (IPS) was announced, the United States has upscaled closer cooperation with the countries in the region. Small states in the Indo-Pacific region are facing a growing dilemma, balancing their ties with the US and inevitable economic engagement with China. Since Nepal’s Foreign Affairs Minister’s US visit in 2018, the US has consistently been urging Nepal to play a central role in the free, open, and prosperous Indo-Pacific region. However, the role that Nepal grants itself in this region is very small. The US has offered Nepal the status of a potential partner in the IPS, which brings a distinctly new and complex diplomatic conundrum for Nepal. In this context, the paper assesses whether the US has been genuinely willing to encompass Nepal’s role in the Indo-Pacific region, or whether it is looking for an opportunity to contain China via Nepal, elucidating Nepal’s strategic importance in the American initiative. The question that arises here is how Nepal is to deal with, survive, and maintain its strategic autonomy in the face of the growing great-power rivalry, even if it enhances both the mode and the momentum of its interaction. The study concludes that Nepal’s national interests are best served by remaining vigilant. The author considers alternative smart strategies of alignment and also identifies a number of areas where additional research could prove crucial.