In two recent decades there has been a main and important concept in institutional approach to local and regional development named as institutional capacity. This concept includes a range of factors in individual, organizational and gregarious level and has rapidly moved from being an analytical concept to a prescriptive one in local and regional development. In this article, we have used a combination of survey-quantitative and qualitative methods to study the relationships between institutional capacity and sustainable development based on mainstreaming it in decision-making and activities of the region’s institutions. To determine the amount of the institutional capacity effect on the sustainable development with regard to the concentrated structure of the Iran’s administrative system and to determine the effect of such concentrated system, we studied the existence of such relations at the regional level, in from of case studies in Boukan and Orumiyeh counties. The results show that there is a significant correlation between institutional capacity and sustainable development and according to the regression analysis results, mainstreaming sustainable regional development has correlation of 0.725 with the constituent factors of the institutional capacity. In addition, the results of the path analysis reveal that the constituent factors of the institutional capacity have different share in the mainstreaming sustainable regional development; so that appropriate legal arrangements, integrated institutions, abilities of institutions, learning and knowledge are effective on the mainstreaming sustainable regional development with 0.604, 0.356, 0.354, 0.248 and 0.074, respectively.