The Common European Agricultural Policy (CAP) reform not only has an impact on agriculture but also has significant effects on nature and the environment. This is specifically caused by decoupling direct payments from agricultural production, which will increase the market orientation of agriculture and by implementing cross compliance. A number of key aspects promoting a future environment-friendly development of the CAP are suggested, based on an empirical analysis of the impact of this reform in eight German regions. In particular, we recommend the coupling of direct payments with the provision of environmental and social welfare services as well as the installation of a long-term monitoring system to enhance the understanding of the links between policy, behaviour of farmers and environmental systems.