The film festival, tentatively scheduled here for July 11-17, will pay compliments to the Bollywood thespian with a Special National Film Award instituted this year.
The actor's ties with Nepal date back to more than three decades to the time of the late King Mahendra, father of the present ruler King Gyanendra.
"Dev Anand was a friend of King Mahendra and had stayed in Kathmandu as a guest of the palace during his coronation as well as at his wedding," said Krishna Malla, a veteran Nepalese director and actor.
Last month three members of Nepal's Film Development Board that is organising the film festival, including Malla, went to Mumbai to invite Dev Anand. The actor accepted the invitation immediately.
Dev Anand, who will be accompanied by his son Suneil, is expected to arrive here July 14 and return three days later.
Nepal has a soft spot for Dev Anand because two of his films were shot in the country over three decades ago - the blockbuster "Hare Rama Hare Krishna," part of which was shot in Nepal's first casino, owned by a brother of Mahendra, and "Johnny Mera Naam".
"The films promoted Nepal as a tourist destination by focusing on its scenic beauty, provided employment to Nepalese technicians and actors and taught Nepal's fledgling industry the art of direction," said Malla.
The other special invitees from India are Pahlaj Nihalani, chairman of the Association of Motion Pictures and Television Programme Producers, and Bollywood star and Nepal's very own Manisha Koirala.
Koirala, the granddaughter of late B.P. Koirala, Nepal's first elected prime minister, inspires mixed feelings among Nepalese.
Her recent statements supporting King Gyanendra, who took over the government by force in February, have not endeared her to the opposition parties.
The Nepali Congress headed by her grandfather's brother G.P. Koirala recently expelled Manisha's father Prakash Koirala from the party for a year for echoing his daughter's sentiments.
Despite his proximity to the palace, Dev Anand however enjoys immense popularity in Nepal.
Nepalese directors recalled how fans had mobbed him while shooting "Hare Rama Hare Krishna" that became a household name in Nepal especially because of the song "Dum maro dum" which featured former Miss India Zeenat Aman.
"When Dev Anand comes he will be front page news again," said Yuganath Sharma, editor of the Nepalese tabloid Commander.