This article attempts to explain relation between nationalism and ethnic conflict – the derived hypotheses are tested on the Nagorno-Karbakh conflict – Armenian- Azeri conflict that has developed into war after collapse of the USSR. In particular, author polemizes against popular statement that ethnic animosity between Armenians and Azeris is primordial and rooted in ancient times. Roots of ethnic nationalism and ethnic conflict can be seen in Russian Empire and USSR nationalities policy, which were partially responsible for nationalistic mobilization after both empires collapsed. It is worthwile to mention that nationalistic mobilization is only partially responsible for conflict militarization, because danger of ethnic violence is usually higher during transitional periods. However ethnic nationalism can play major role in defining an aim and possible mechanisms of ethnic mobilization. Also, it can be assumed that nationalism is partially responsible for lack of peaceful settlement of Nagorno-Karabakh conflict. First part of the analysis deals with methodological problems in research on nationalism in the South Caucasus. Second part provides historical overview and explains rise of nationalism as well as possible causes of Armenian-Azeri animosity. Third part deals with Soviet nationalities policy, which instruments: ethnofederalism and institutionalization of ethnicity are key factors responsible for strenghtening titular nationalities and rise of ethnic nationalism after collapse of the USSR. Finally, article explains role of myths of ethnogenesis in diffusion of the ethnic nationalism.