Rapid economic and population growth experienced in last decade has brought significant increase in amount of urban waste generation in many developing countries like Nepal. Increasing waste generation created many problems including littering and dumping in and around outskirts of urban areas. Main problems associated with waste management in most developing countries are 1) low waste collection rates, 2) low recycling levels (recycling limited to informal recyclers), 3) littering, and 4) inappropriate final disposal. In addition to urban environmental pollution, inappropriate disposal causes generation of Greenhouse gasses such as methane gas and leachates from landfill sites. It is emphasized that most recycling is done by informal sector, restricted to materials having high market value like metals, paper and plastics. Here, we identify the potential environmental and socio-economic benefits of introducing organic waste recovery coupled with expansion of recycling of inorganic waste through cooperation with informal sector and establishment of a well-designed and managed sanitary landfill. Kathmandu city was used as a model case and Life Cycle Assessment tool was applied for evaluating potential environmental impacts. Four different scenarios were proposed based on feasible options that focus on organic recovery and informal recycling at transfer station prior to movement to landfill site. Scenarios were evaluated in terms of Global Warming Potential, Biochemical Oxygen Demand, final disposal waste, and recycling levels and energy recovery. We suggest that introduction of bio-gasification of commercial waste and composting of household waste coupled with enhanced recycling and sanitary landfill might provide highest environmental and socio-economic benefits.