Himalayan lakes represent critical water resources, culturally important waterbodies, and potential hazards. Some of these lakes experience dramatic water-level changes, responding to seasonal monsoon rains and post-monsoonal draining. To address the paucity of direct observations of hydrology in retreating mountain glacial systems, we describe a field program in a series of high altitude lakes in Sagarmatha National Park, adjacent to Ngozumba, the largest glacier in Nepal. In situ observations find extreme (>12 m) seasonal water-level changes in a 60-m deep lateral-moraine-dammed lake (lacking surface outflow), during a 16-month period, equivalent to a 5 times 10^6 m^3 volume change annually. The water column thermal structure was also monitored over the same period. A hydraulic model is constructed, validated against observed water levels, and used to estimate hydraulic conductivities of the moraine soils damming the lake and improves our understanding of this complex hydrological system. Our findings indicate that lake level compared to the damming glacier surface height is the key criterion for large lake fluctuations, while lakes lying below the glacier surface, regulated by surface outflow, possess only minor seasonal water-level fluctuations. Thus, lakes adjacent to glaciers may exhibit very different filling/draining dynamics based on presence/absence of surface outflows and elevation relative to retreating glaciers, and consequently may have very different fates in the next few decades as the climate warms.