The present study aimed to assess trends, driving factors, and implications of forest habitat extent and connectivity over the 1973–2017 period and to identify policy actions for enhancing landscape multifunctionality in peri-urban Delhi (India). Land cover/use in 1973, 1986, 1996, 2005, and 2017 was mapped by supervised classification of satellite data, and forest habitat connectivity was assessed by Morphological Spatial Pattern Analysis. Tree species diversity and carbon stocks were assessed by quadrat sampling and people’s perceptions from participatory discussions with individuals/focus groups and responses to questionnaires. Urban area expanded and cultivated area diminished at annual rates of 29% and 2%, respectively. Urbanization occurred mostly in scrublands. Croplands declined largely because of the development of farm houses, which are the country houses of urban elites for retreats. Afforestation/reforestation compensated for deforestation/forest degradation such that spatial connectivity measured as “branch,” “bridge,” and “loop” was reduced, while “core dense–open forest mosaics” were enlarged. Yet, management was effective in enhancing climate change mitigation function but not biodiversity conservation and livelihood functions of forests. Plant/animal species literacy was quite poor. People were ignorant of carbon sequestration and species classification based on global conservation values. Gender, age, education, and occupation impacted perceptions of forest ecosystem services/disservices. Many agencies managed green spaces. None of them explicitly addressed ecological or social connectivity and feedback loops between forest and nonforest land uses and other socioeconomic activities in the landscape. Management plans lacked an adaptive co-management approach. There is a need for policies supporting collaborative action research turning concepts into practices effective in enhancing landscape multifunctionality and ensuring their incorporation in master development plans.