The problem of debt overhang is becoming intractable in Nigeria. It is believed that the rising trend of domestic debt is determined by some factors. The paper empirically investigates the variables influencing domestic debt. Prior literature on debt had focused on external debt. Literature on domestic debt had just examined its impact on economic growth. Multivariate vector error correction framework was used to analyze data obtained from Central Bank of Nigeria, World Bank National Accounts Data and Debt Management Office between 1970 and 2015. Domestic debt investor base swings between the deposit money bank and the non-bank public. Lagged values of budget deficit, external debt and GDP growth rate explains current domestic debt in the short run. There exist bi-directional granger causalities between domestic debt and budget deficit, domestic debt and external debt and domestic debt and GDP growth rate. The study recommends reasonable budget cut, redirection of fiscal deficit into productive capital expenditure, eliminating recurrent fiscal financing and thereby utilizing rising domestic debt. The study contributes to existing knowledge on domestic debt and affirmed that budget deficit, financial deepening of an economy, external debt, interest rate and GDP growth rate has a long run relationship with domestic debt in Nigeria.