Background Excessive use of the internet among adolescents often led to later bedtimes and poor sleep quality. This study assessed the relationship between internet addiction and sleep quality among adolescents in a peri-urban setting in Nepal. Method This cross-sectional study employed a questionnaire survey among 390 adolescent students recruited from two schools in Kirtipur Municipality in Nepal. The Internet Addiction Test and the Pittsburgh Sleep Quality Index were used to assess internet addiction and poor sleep quality respectively. The association between internet addiction and sleep quality was analysed by logistic regression. Results One-fifth (21.5%) of the participants were identified with borderline internet addiction and 13.3% with possible internet addiction. Poor sleep quality was found among 31% of the participants. Internet addiction was significantly associated with poor sleep quality (OR = 1.85, p = 0.022 for borderline, and OR = 3.98, p = <0.001 for possible internet addiction compared to no internet addiction). Conclusion Adolescents with internet addiction were more vulnerable to suffer from poor sleep quality. It is recommended that municipalities and schools should aware the adolescent students on the adverse effects of excessive internet use including poor sleep quality. The findings have implications for adolescents, parents, school authorities and researchers.