For stimulating sustainable development in developing countries, land use patterns and land use changes are considered critical, and therefore effective and efficient land use policies are needed. In this paper we present a methodological framework that has been developed in a joint European and developing countries project (LUPIS Land Use Policies and Sustainable Development in Developing Countries), to assess the impact of land use policies on sustainable development in developing countries. An illustrative application is presented for a case study in China, where water pollution due to agriculture in Taihu Basin is a major problem. We argue that an integrated assessment is required, considering multiple drivers and indicators that determine the objectives and constraints of the stakeholders involved. Therefore, the sustainability impact assessment (SIA) is based on the concept of Land Use Functions (LUFs), and impacts on these LUFs are discussed with stakeholders based on a multi-criteria analysis. LUFs comprise economic, environmental and social indicators relevant for stakeholders at multiple scales. Instead of focusing only on the indicators that determine the problem (e.g., nutrient leaching in the Chinese case study), we take a broader perspective (considering also social, economic and institutional objectives and constraints), such that feasible policy options can be recommended. Stakeholders have a large role in discussing the selection of indicators and policies (pre-modelling), evaluating the impacts on indicators (modelling), and the weighing of indicators and LUFs (post-modelling). For the assessment of impacts on indicators (modelling), quantitative and qualitative approaches are combined. We present and discuss an impact assessment of policy options in Taihu Basin, for the current situation and towards 2015. The methodological framework as presented here proved to be useful to guide a sustainability impact assessment in China and six other case study regions.