The purpose of the study is to assess the impact of the decentralization reform on the sustainable development of territorial communities (TGs) in Ukraine, in particular under martial law. The article uses research methods such as theoretical analysis and synthesis; strategic analysis, in particular SWOT analysis; individual expert assessments; spatial analysis; typology; and forecasting. As a result of the conducted research, it was shown that the decentralization reform in Ukraine did not fully solve the tasks set for it, especially regarding the territorial organization of power. Based on this, the article attempts to justify the necessary steps and measures to improve the effectiveness of the reform in the context of the sustainable development of TG. In particular, it is recommended: to coordinate the basic laws of reform with the Constitution of Ukraine; to form administrative-territorial units of different levels based on the theory of central places; develop strategies and plans for spatial development of communities at a high professional level; restore and strengthen the economic potential of the TG within the framework of the Recovery Programs and the State Strategy of Regional Development of Ukraine for 2021–2027; intensify the creation of such forms of spatial organization of the economy, which will contribute to the consolidation and innovation of TG; increase the financial capacity of TG—based on the development of the local economy; to carry out adequate social policy for the return of TG residents to places of permanent residence; guarantee a high standard of living for all citizens regardless of their place of residence; rational use of TG assimilation potential; develop a “green” economy in TG, with an emphasis on its core—a circular economy; dramatically improve the environment in most TGs, especially those most affected by hostilities; resume the activities of the Ministry of Community and Territory Development. Actually, the rationale for these recommendations is the novelty of the study.