The concept of sustainability has been widely recognized as a pivotal objective for future growth. Therefore, it is imperative to incorporate the principles of sustainability into policies and plans, particularly in land use and agri-food production, sectors often associated with negative environmental impacts. Addressing all three pillars of sustainability—environmental, economic, and social—is essential, within the contexts of agri-food production and land use. Consequently, sustainable rural development is also critical. This study utilizes Iceland as a case to examine whether and how sustainability goals are translated from national policies to municipal plans, which represent the governance level closest to implementation. The research employs content analysis of national policies and municipal plans, utilizing grounded theory to code the content. The findings indicate that while the concept of sustainability is embedded in Icelandic policies and goals, there is a tendency to overlook the economic and social dimensions. Additionally, the study reveals a limited application of sustainability principles in rural development and agri-food production. Recognizing the “wicked” nature of sustainability, which complicates its implementation, is crucial for advancing from goal setting to effective action.