Forest carbon markets (FCMs) have emerged as a significant means to direct resources toward urgent climate action that can mobilize a large set of actors and catalyze funding toward reducing deforestation and promoting sustainable forest management. Here, we conduct a critical qualitative review of global academic and investigative literature to identify ten major sets of design principles that provide a platform for the functioning of carbon markets worldwide. From these, we pinpoint four design principles which may be relevant to future market-based mechanisms in India We propose that clarity over market-quality standards, comprehensive regulatory framework, minimization of transaction costs and upfront financing options, and flexibility in timebound and spatial commitments would be fundamental to ensure that market-based mechanisms in India accrue sustainable and long-term benefits to climate action and human well-being. A successful market-based mechanism in India’s forestry sector would have to overcome challenges around land property rights, local implementation capacities and knowledge gaps, and incentive structures to ensure that it likely caters to the needs of all stakeholders while delivering socio-ecological benefits.