Due to the increasing priority orientated towards more integrated policy concepts, such as rural development policy, there is a growing need to address the concept of multifunctionality for policy assessment. In particular, the dependence of the various tasks and services provided by agriculture on the territorial contexts is a key issue in valuing adequately the potential of agriculture and forestry in diverse types of rural regions. These questions were therefore the main aims of EU FP6 research project TOP-MARD 2 which tried to develop the concept of multifunctionality as a rural development policy instrument that is sensitive to economic, social, cultural, environmental and geographical context. The project was designed to analyze how the various functions of the agricultural sector in any given territory affect the sustainable economic development and the quality of life of that territory, and how different policies affect these relationships. In a sample of 11 EU countries specifi c study areas were selected to explore the diversity of multiple functions, co-production, and impacts on rural development across Europe. One of the main objectives and outputs of the research project was to improve our knowledge about the relationships affecting multifunctional tasks. A core project deliverable was to characterize these driving forces and interrelations in a policy model (called POMMARD) which would allow the simulation of the dynamic economic, social and environmental impacts of different future policy scenarios in different rural contexts. The paper presents an overview of the objectives and structures of the project, including a comparison of the case study areas and an overview of the POMMARD model. As the provision of tasks going beyond agriculture is particularly expressed in contexts of less-favoured and mountainous areas, a comparative analysis of territorial impacts of multifunctional agriculture in two mountain regions will be presented here: the Pinzgau-Pongau region (Austria), and the Gorenjska region (Slovenia). A set of policy and market scenarios (fi ve policy scenarios) that were tested across all the study areas are summarized for these two regions by analysing the model results and focusing on major conclusions of the project.