The 31-year-old royal was given a rapturous welcome in Okhari by villagers who decked him with garlands and scarves.
The prince's cheeks and forehead were covered when he took part in a powder paint fight as Nepalese villagers celebrated Holi.
The Hindu ritual, which marks the arrival of spring, involved revellers throwing paint and coloured water at each other.
He visited Okhari, a village in the mountains, to see the Gurkha Welfare Trust's efforts to rebuild a school wrecked by last year's massive earthquake.
He described the experience of sleeping under the same roof as the Nepalese family as "peaceful, actually. Lots of dogs barking, but it didn't seem to bother them."
The prince visited the Gauda Secondary School in the village, to see how the British-based Gurkha Welfare Trust is helping to fund the rebuilding after it was damaged during last year's earthquake.
The prince's five-day trip is celebrating 200 years of relations between Nepal and Britain.
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