In this paper, we elaborate an Institutional Analysis and Reconfiguration Framework centered around the ‘action arena’ theoretical approach. We develop this framework to analyze institutional reconfiguration to enhance sustainability, and operationalize it using research methods which focus on documentation of the institutional contexts through an extensive literature review and interviews of experts in forest policy. We apply the Institutional Analysis and Reconfiguration Framework to examine forestry institutions, address forest governance, and investigate their effect on socio-economic and environmental performances in forestry of Ukraine. The paper draws on the state of affairs in post-transition forestry, its difficulties, and new prospects for economic and institutional reforms. We examine challenges and opportunities in forestry and suggest key remedies and prospective ways forward. Results show that a combination of path dependency with the rigidity of institutions and a slow pace of economic and political reforms is the major obstacle to implementing decisions regarding sustainable forest policy. A reconfiguration of social practices is required, as well as the development of capabilities and awareness raising amongst relevant stakeholders, to realize the problems, envision alternative futures, challenge existing institutions, shift power relations and create new norms, rules, and decision-making arrangements. The way towards sustainability in forestry largely goes through changing institutions, and a human dimension of institutional changes reflected in the uptake of social innovation.