Chinese New Year, also referred to as the lunar new year, is easily the biggest annual celebration in Taiwan and usually takes place during January or February, depending on the lunar calendar. The three-day holiday falls on the first day of the first lunar month, with festivities beginning on the eighth day of the last lunar month of the old year and continuing through the 15th day of the first lunar month, ending with Lantern Festival (mentioned separately). While extended related festivities last for weeks, most residents take anywhere from three days to a week off from work, depending on their circumstances.

As the most significant Chinese holiday, it is a family and religious occasion that is eagerly anticipated by Taiwanese of all ages, who spend a tremendous amount of time, money and energy preparing for it and celebrating it. Westerners often compare it to a celebration of Christmas and the New Year, all wrapped up in one week-long holiday. The climax of the entire holiday is New Year's Eve, which most extended families spend together over a family feast. Children are given "hung bao" red envelopes of money and the new year is welcomed in with firecrackers, which echo across the city.

During the second day of the new year, married daughters usually return home to visit their parents' home. The third day, believed to be a time of bad luck, is usually spent at home. These holiday patterns, still followed closely by most Taiwanese, often determine traffic patterns and traffic jams on the highways around Taiwan over the holidays.

Chinese New Year originates from the legend of "Nian", a ferocious monster who attacked people every New Year's Eve. The people learned to keep Nian away by setting off firecrackers,and sticking red paper on their doors, since the monster was known to fear light, loud noises, and the color red. When the people discovered the next morning that they had successfully evaded Nian for yet another year, there were celebrations throughout the land. Chinese New Year festivities last about three weeks altogether, beginning when various gods are travel to the supreme Taoist deity. Households burn ritualistic "money" to please the gods by providing expenses for their travels.

Red paper with certain Chinese characters such as "longevity" and "wealth" are placed all around the house, particularly on doorways. The paper is purposely placed upside down, because the Chinese word for "upside down" is a homonym for "arrival". Therefore, by placing a red square with the word "good fortune" written on it upside down represents the hope of the arrival of good fortune.

Street vendors, night markets, and street markets in Taichung will all begin to sell everything from red banners to special new year candy weeks before and during the holiday. Transportation routes are also most definitely jammed as the Taiwanese will all be traveling to reunite with their family members. Therefore, it is best to make local or international travel arrangements during this period well in advance.

There are a variety of traditions and practices associated with the Chinese New Year that foreigners should be aware of and sensitive to. During this time, Chinese give and receive money and settle all outstanding debts. Employees generally receive a bonus of at least one month's salary. Gods and ancestors are also remembered and honored at temples and family altars. According to other traditions, individuals should not be angry, cry or scold; not talk about death; not handle knives, scissors or needles; not sweep the floor, lest one sweeps good luck for the coming year out the door; and should wear brightly colored clothing, such as red, but not white, which is a traditional mourning color.