Kate swapped her skinny jeans and 10-year-old boots for Beulah London's "Juliet Flower Spirits" dress in red, which retails for $1,057 from the current collection.
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In a nod to the host country, she accessorized with a blue poppy – the national flower of Bhutan.
The reception celebrated relations between Great Britain and Bhutan. Friday was the couple's second day in the real-life magical kingdom, where Kate and William have been spending time with their royal counterparts, the Dragon King and Queen.
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Earlier in the day, William and Kate spoke to reporters about their impressions of the small-but-spectacular Buddhist country.
"I feel very lucky and fortunate to see such beautiful scenery," Kate said, adding, "As William said, learn about the country."
The royal parents will wrap up their weeklong trip on Saturday, with William telling PEOPLE that they miss their children "massively" and that they have called home "many times."