Dry season diets and habitat use of increasing populations of Asian elephants Elephas maximus and greater one-horned rhinoceros Rhinoceros unicornis in the Babai Valley of Royal Bardia National Park, Nepal, are described, and an assessment is made of the potential for competition between them. The diets, analysed by microhistology, were different, with a similarity index of 37.5%, and with different grass/browse proportions: the rhino diet consisted of 63% grass and 28% browse; that of elephants was 24% grass and 65% browse. A tallgrass floodplain grass, Saccharum spontaneum, was the plant most eaten by rhinos, whereas elephants consumed a large proportion of bark of Bombax ceiba and Acacia catechu, as well as several browse species not eaten by rhino. The habitat use of elephants was determined by dung-counts within 30 km of 20-m wide belt transects, while that of rhino was taken from an earlier study. Elephants used a wider range of habitats than rhino, but two types, the tallgrass floodplain and khair–sissoo forest, were preferred by both species simultaneously. While elephants used the abundant sal forest extensively, rhino strongly avoided this habitat. Densities of both species were low at the time of study (<0.5 animals/km2), but their numbers are expected to increase markedly in coming years. Because available habitats for expansion are limited, this may lead to competition. Rhino might then become the weaker species, as elephants are more flexible in their ranging and foraging activities. The tallgrass floodplain habitat and its important forage grass S. spontaneum may then become the critical resources.