This thesis is about the analysis of capacity levels around health information use based on a district-level case study from Nepal. Well capacitated workforce can make better use of Health Information System (HIS) and generate adequate information which can serve as blueprints for evidence-based decision making. District Health Information System (DHIS2) is being used as a national HMIS tool in Nepal and currently is in the infant stage of implementations. The government of Nepal is seeking to expand DHIS2 usage to sub-district levels in compliance with the decentralization thrust of the new constitution. This large scaling is going to add exponentially to the capacity challenges. The problem of capacity is even more in the local bodies and districts. Thus, this makes it extremely urgent to study the capacity challenges to equip the country for its current and future demands. The objective of this research is to analyze capacity for health information use with a key focus on local bodies. This study is based on data and information obtained from direct observations at health facilities in the case districts, semi-structured interviews with selected stakeholders and reading of relevant secondary documents. It has thoroughly analyzed the cases from two districts and discussed the major challenges to capacity building and information use based on the concepts of information cycle, training transfer and network of actions. It has then discussed the possible approaches to capacity building for increased health information use. The major finding of this study is that the existing capacity of DHIS2 is primarily limited to data entry. The current workforces are not fully capable of using all the features of DHIS2 and HMIS and thus needs further strengthening. At many places, the lack of available infrastructure has constrained the trained health staff from using DHIS2. The use of information at the same site where they are generated is very thin. As future directions for making HISs sustainable and scalable in Nepal, the study has suggested on- conducting more training programs for individual-level capacity development of health staff at the local bodies and districts; introduction of master’s degree courses on health informatics at the universities; opportunities of researches on health information systems; and establishment of an organization: Health Information System Program-HISP Nepal to support the government in strengthening capacity for using DHIS2 and carrying out other advanced tasks in the system.