Policies subsumed under the term ‘direct regulation’ have long been and still are the most widely used approaches for environmental protection and biodiversity conservation in particular. However, so far direct regulation has perceived only little attention in economic research on instrument choice. Hence, the purpose of this literature review is threefold: (1) to describe the main features and provide a classification of direct regulation; (2) to survey the available literature regarding the environmental effectiveness, cost‐effectiveness, distributional aspects and institutional prerequisites of direct regulation; and (3) to draw conclusions regarding the role of direct regulation within a policy mix for biodiversity conservation and ecosystem service management.