Background: Despite the potential benefits of increased dairy consumption for a sustainable diet among Iranians, low levels of dairy consumption and its decreasing trend have raised serious concerns. This study used the food systems approach to identify macro-level factors contributing to low dairy consumption in Iran. Materials and methods: In-depth interviews with 39 key informants and stakeholders from various sub-systems of the dairy food system were conducted from December 2021 to November 2022. The data analysis was conducted simultaneously with data collection, using a deductive–inductive content analysis approach. Results: The main challenges identified in the production and processing subsystems included the unsustainable development of a milk and dairy production system, high production and distribution costs, and an inconsistent quality of products. In the consumption subsystem, challenges were a reduced purchasing power of consumers, doubts about the necessity of dairy consumption, and concerns about safety risks. These challenges were further compounded by some other challenges in the dairy food system and contextual challenges such as economic instability, government sectoral policies, and Iran’s hot and semi-arid climate. Conclusion: Policy makers must revise the dairy industry’s structure, policies, and activities, and consider utilizing local livestock and feed production systems. Pricing policies should be reformed, subsidies provided for low-income groups, and promotion programs developed to enhance the public awareness of dairy’s nutritional value and safety. Independent quality control agencies should be established, and a comprehensive approach to promote good governance and improve the policy-making process should be adopted.