The stability of the banking sector is fundamental to economic growth, financial intermediation, and public confidence in the financial system. Deposit insurance schemes have emerged globally as critical financial safety-net mechanisms designed to protect depositors against bank failures, reduce the likelihood of systemic banking crises, and promote financial stability. In Nigeria, the Nigeria Deposit Insurance Corporation (NDIC) serves as the statutory institution responsible for administering the country's deposit insurance scheme under an evolving legal and institutional framework. This study critically assesses the legal and institutional framework governing the operation of the deposit insurance scheme in Nigeria with particular emphasis on the effectiveness of the Nigeria Deposit Insurance Corporation Act, 2023, the Banks and Other Financial Institutions Act, 2020, the Central Bank of Nigeria Act, 2007, and other relevant regulatory instruments. The study adopted a doctrinal legal research methodology based on the analysis of statutes, judicial decisions, policy documents, regulatory guidelines, and scholarly literature. The findings reveal that although the existing legal framework has substantially strengthened depositor protection, bank resolution mechanisms, and financial system stability, challenges relating to regulatory coordination, delayed resolution of failed financial institutions, emerging financial technologies, cybersecurity risks, and public awareness continue to constrain the effectiveness of the deposit insurance scheme. The study concludes that strengthening institutional collaboration, modernizing regulatory frameworks, enhancing technological capacity, and improving depositor education are essential for sustaining public confidence and ensuring the long-term effectiveness of Nigeria's deposit insurance system.