Aishwarya Rajya Laxmi Devi Shah was born on 7 November 1949, in Lazimpath, Kathmandu. She was the eldest of the three daughters of Kendra Shumshere Jung Bahadur Rana, a Lieutenant General in the Nepalese army, and Rani Rajya Lakshmi Rana. Her two sisters were married to King Birendra's brothers - Gyanendra (now king) and Dhirendra. Until the people's revolution in 1950 the Rana dynasty was in power in Nepal for 104 years. The Rana clan usurped all executive powers in 1846 and whilst the monarchy continued, the Ranas who held all the major posts wielded real power. She was educated at St Helen's Convent, Kurseong and St Mary's School in Kathmandu, and then went on to study at Padma Kanya College and Tribhuvan University, Kathmandu. Queen Aishwarya married Birendra in 1970 before he ascended to the throne two years later.

Due to her forceful nature and her impetuousness, she earned many enemies, most notably the leftist parties of Nepal. In 1998, a crowd threw stones at her and tight security measures had to be adopted for her future public appearances. Queen Aishwarya was considered to be the power behind her husband's throne and the real ruler of Nepal. Her royal aides were often directed to act on orders that best suited and were most likely to further her own political ambitions.

Queen Aishwarya was dead along with her husband, King Birendra, her son, Prince Nirajan, her daughter, Princess Shruti, and seven other royal family members, by her own son Prince Dipendra, who was wearing military fatigues and wielding an assault rifle and a submachine gun. It is widely believed that the motive for the Queen's murder was her strong opposition to the Crown Prince's proposed marriage to Devyani Rana. Her face was so badly disfigured by the gunshot wound that, for the widely attended state funeral procession, a china doll bearing her likeness covered it.