Scenario analysis is a process of evaluating possible future events through the consideration of alternative plausible, though not equally likely, states (scenarios). The analysis is designed to enable improved decision making and assessment through a more rigorous evaluation of possible outcomes and their implications. For environmental impact and integrated assessment studies, the process of scenario development typically involves making explicit and/or implicit assumptions about potential future conditions, such as climate change, land cover and land use changes, population growth, economic development and technological changes. Realistic assessment of scenario impacts often requires complex integrated modelling frameworks that represent environmental and socioeconomic systems to the best of our knowledge, including assumptions about plausible future conditions. In addition, scenarios have to be developed in a context relevant to the stakeholders involved, and include estimation and communication of uncertainties, to establish transparency, credibility and relevance of scenario results among the stakeholders. This paper reviews the state of the art of scenario development and analysis, proposes a formal approach to scenario development in environmental studies and discusses existing issues. Major recommendations for future research in this area include proper consideration of uncertainty involved in scenario studies, construction of scenarios of a more variable nature, and sharing of information and resources among the scenario development research community.