This research tackles significant gaps in understanding the seismic behavior of dressed stone masonry, a common yet fragile building technique in Nepal’s Himalayan region. The 2015 Gorkha earthquake underscored the ongoing issue of seismically weak masonry, pointing to a lack of locally verified material data and structural analysis. This study combines experimental testing with numerical modeling to assess the mechanical properties and seismic vulnerability of dressed stone masonry using mud mortar. Laboratory experiments measured the average compressive strength of stone (74.93 \(\:\pm\:\) 2.17 MPa), mud mortar (2.45 \(\:\pm\:\) 0.19 MPa), and masonry wall assemblies (3.30 \(\:\pm\:\) 0.06 MPa), as well as a diagonal shear strength of 0.0175 \(\:\pm\:\) 0.00135 MPa and a modulus of elasticity of 345.97 \(\:\pm\:\) 87.86 MPa. These parameters were used to create a finite element model of a typical two-story building from West Rukum in DIANA FEA. Pushover analysis indicated a base shear capacity of 670 kN at a drift of 1.26%. Fragility analysis, utilizing the Capacity Spectrum Method, showed that dressed stone masonry has significantly better seismic resilience than traditional rubble masonry. At a design-level PGA of 0.35 g, the probability of collapse is 15%, much lower than the 56% observed in pre-2015 rubble stone masonry. The primary failure mechanism is shear-driven, with cracks starting at openings and spreading diagonally. The study concludes that although dressed stone masonry is still vulnerable, its improved material and structural characteristics make it a more earthquake-resistant construction option for mountain communities compared to rubble stone masonry. The results provide crucial data to guide building code development and “build-back-better” strategies in Nepal.