The Federal government of Nigeria in line with restructuring of its projects has resorted to domestic borrowing as to create an impact on the economic development of the country. The government embarked on raising fund through domestic debt instruments of various maturities and time dimension. The research covered a period of 32 yrs (1981-2012). The impact of domestic debt on the economic development of Nigeria was analyzed with the statistical programme of social Science using raw secondary data obtained from the Central Bank of Nigeria Statistical Bulletin. The result showed that a positive relationship exist between the dependent and independent variables. Also, the human development index (HDI) measuring national socioeconomic development based on standard of live, education and health and emphasis on government having an economic policy of improving the standard of living of the people. The government is advised to invest in capital and productive projects to show for domestic debt borrowed, invest in raising the standard of human development and maintain a fiscal discipline to limit the risks inherent in domestic borrowing.