Habitat fragmentation has been widely studied in the biological literature and is considered a primary threat to biodiversity. However, there has been little research on land-use policies to reduce fragmentation. This dissertation focuses on two major research issues related to fragmentation policies. First, I develop an analytical model to analyze the optimal conservation strategy on a landscape with habitat fragmentation effects. Second, I develop an empirical methodology to quantify the economic costs of reducing fragmentation through the use of incentive-based land-use policies. A theoretical model of land use is developed to analyze the spatial configuration of landscapes when land quality is spatially heterogeneous and wildlife habitat is fragmented and socially valuable. When urban development is the primary cause of fragmentation, I show how spatial heterogeneity in amenities and household neighbor preferences affect the optimal landscape and the design of efficient land-use policies. When agriculture is the primary cause of fragmentation, I derive optimal conservation strategies for reducing fragmentation. I show that reforestation efforts should be targeted to the most fragmented landscapes with an aggregate share of forest equal to a threshold, defined by the ratio of the opportunity cost of conversion to the social value of core forest. A parcel-level econometric model of land-use change is developed and integrated with spatially-explicit landscape simulations to predict the empirical distribution of fragmentation outcomes under given market conditions and policy scenarios. I examine the effects of alternative policy designs on various measures of fragmentation and then quantify the costs of achieving spatial outcomes. I find that the costs of reducing forest fragmentation vary greatly with initial landscape conditions and that a simple uniform subsidy appears to perform well relative to more complicated spatially-targeted policies. In addition, my results suggest that initial landscape conditions, rather than the policy approach, should be the foremost consideration for wildlife managers deciding how to allocate a limited budget to conservation efforts.