Conventional dredging of ditches and streams to ensure agricultural drainage and flood mitigation can have severe environmental impacts. The aim of this paper is to investigate the potential benefits of an alternative, nature-based two-stage channel (TSC) design with floodplains excavated along the main channel. Through a literature survey, investigations at Finnish field sites and expert interviews, we assessed the performance, costs, and monetary environmental benefits of TSCs in comparison to conventional dredging, as well as the bottlenecks in their financing and governance. We found evidence supporting the expected longer-term functioning of drainage as well as larger plant and fish biodiversity in TSCs compared to conventional dredging. The TSC design likely improves water quality since the floodplains retain suspended sediment and phosphorus and remove nitrogen. In the investigated case, the additional value of phosphorus retention and conservation of protected species through the TSC design was 2.4 times higher than the total costs. We demonstrate how TSCs can be made eligible for the obligatory vegetated riparian buffer of the European Union agri-environmental subsidy scheme (CAP-AES) by optimising their spatial application with respect to other buffer measures, and recommend to publicly finance their additional costs compared to conventional dredging at priority sites. Further studies on biodiversity impacts and long-term performance of two-stage channels are required.