What famous legend is said to be from Nepal?

The legend of Kathmandu valley is still considered as one of the famous legend from Nepal.

According to local legend, the Kathmandu Valley was once a big lake with many lotus floating around it and from the strike of sword of wisdom from the Boddhisattva Manjushri, the water drained out and the area eventually became a valley.

The most popular legend from Nepal is the Living Goddess

Legend is about the Goddess Taleju used to visit the king, in human form at night to recommend him and to play dice. There is a time Jaya Prakash Malla, the king, looked at the goddess lustfully. Which makes the goddess angry and announced that she would never come to his place again. She also declare that both the end of his reign, and the fall of his dynasty were at hand. When the king ask for forgiveness, the goddess at last made a negotiation. The king was to select a virgin child from a Newari caste and announced her the living goddess kumara and worship her, for in this child she herself would manifest. So, the practice of living Goddess is still going on.