From Diablo Wiki
Nephalem Valor is a game system introduced in Diablo III and added to the game shortly after release.
Characters who are level 60 gain one "stack" of Nephalem Valor for each random boss they kill, up to 5 stacks. Each stack awards a 15% bonus to Gold Find, Magic Find, and Experience gain, for a total bonus of 75% to each. The NV bonus is added on top of of the 300% Magic Find/Gold Find cap and any Monster Power bonuses, and lasts for 30 minutes from the last boss kill. (The timer is reset with each new qualifying boss kill.)
In addition to the 75% bonus, a number of special game functions are enabled only when a character has five stacks. These include a guaranteed rare item (or better) drop from each boss, much improved drops from numerous Quest and Act Bosses, and a chance to find the Keys and Demonic Organs that are part of the Infernal Machine event.
Nephalem Valor becomes available once a character reaches level 60, no matter what difficulty level they are playing on. (Players can even return to Normal and stack up there for low level item hunting.)
All randomly-occurring bosses award a Nephalem Valor stack when killed. This means Champions (blue names) and Bosses (yellow names). Uniques (purple names) do not award Nephalem Valor stacks, but some special quest and act boss Uniques will drop extra loot when killed by stacked characters. Those few are listed below.
Nephalem Valor lasts for 30 minutes from the last qualifying boss killed, and the timer is reset anew each time a boss is killed or a Resplendent chest is opened.
Changing any Active or Passive skills will erase all stacks, and NV stacks reset when characters travel between acts.
 Boss Drops Affected
While all chest drops are improved, and all monsters, regular and boss, have a chance to drop more or better gear due to the Magic Find bonus from Nephalm Valor, only a few bosses have a guaranteed special effect when killed by a character with five stacks active.
All Champions and regular Bosses drop a guaranteed 1 additional Rare or Legendary item when killed with 5 stacks active. The same bonus drop applies to Resplendent Chests as well. In addition to those, a number of the major quest and act bosses drop higher quality loot (and usually much more of it) when killed by characters with five stacks. These are:
- Act One: the Skeleton King, Queen Araneae, The Warden, The Butcher.
- Act Two: Maghda, Zoltun Kulle, Belial.
- Act Three: Ghom, Siegebreaker, Cydaea, Azmodan.
- Act Four: Diablo (Only. Not Tyrael or any of the other Uniques.)
Also note that five stacks are required to get any of the keys or demonic organs as part of the Infernal Machine event.
The Nephalem Valor system was revealed a week after Diablo 3's release, on May 21, 2012.
- We have an enormous number of skill build combinations, and we want a lot of those skill builds to be viable and interesting.
- While there are millions of skill builds available to players, we don’t want players swapping skills regularly to beat specific encounters as they come up.
- We don’t want repeatedly running specific three-minute chunks of the game to be the most efficient way to acquire gear for your character.
- While a three-minute run shouldn’t be the most efficient, we also don’t want you to feel like it’s a two-hour commitment every time you sit down to play.
- Bosses should still feel worth killing
Nephalem Valor is one of the major new systems in Diablo III and it kicks in at level 60. Keep in mind that this is still in testing and we’re still working out the details. Here’s how it currently works internally: Rare and Champion packs already have great loot on them. By killing a Rare or Champion pack, not only do you get their loot, but you’ll also receive a buff granting you increased magic find and gold find. However, if you change a skill, skill rune, passive, or leave the game, the buff disappears. As an extra reward, if you kill a boss while this buff is active, you’ll receive extra loot drops from that boss.
The exact amount of magic find and gold find provided by the buff is still being reviewed, as is the amount of extra loot you get from a boss while the buff is active. We’re also playing around with whether or not the buff stacks, what the duration should be, and whether or not it should persist through death. We want to make sure the buff is strong enough to make staying in your current game more rewarding than creating a new game. At the same time, if the buff is too strong, it risks making shorter play sessions feel not worthwhile.We expect this system will encourage players to stick with a skill build of their choice, select an area of the game they enjoy, and sweep it for rare and champion packs on their way to a boss, finishing off a run with a boss that’ll be worth killing. If you wanted a shorter play session you could be done at that point, but if you have more time, the path of least resistance would ideally be to stay in the same game and make your way towards the next boss.
Typical drop in Inferno with a full stack in v1.03.