Dispersive soil is most problematic in nature with contact of water. The use of dispersive soil in civil engineering structures causes serious engineering problem if the soil isn’t accurately identified before use and appropriate measures are not taken. In Nepal, the problem encountered in the Sikta Irrigation Canal is the first case. In Sikta irrigation canal, excessive soil erosion and gully formation along with tunnelling in some places are observed in cut slopes. In some places, hard materials are left at the cut slopes toe after erosion of soil. Soil along with the water is seen oozing out from weep holes in many places damaging and/or endangering the canal lining. Soil erosion and tunnelling are observed in the nearby area, even where the soil is undisturbed. Study and research about dispersive soil is not proper in Nepal. Now, it should be mandatory to test the dispersive soil in Nepal. Dispersive soils are prevalent in Australia, Tasmania, Mexico, Trinidad, Vietnam, South Africa, Thailand, Israel, Ghana, Brazil, Venezuela etc. Current test used for identification include Pinhole test, Double Hydrometer, Crumb test and Chemical test. Comparatively Pinhole test is reliable to identify dispersive soil. The main objective of this research is to identify dispersive soil and chemical treatment for reducing dispersion in soil. Soil samples from different location of sites were used to test for identifying dispersive soil and check the extent of dispersivity of the soil. According to the result, soil is dispersive with Pinhole test being ND2.