This article differentiates between descriptive and explanatory factors to develop a typology and a theory of stakeholder and public engagement. The typology describes different types of public and stakeholder engagement, and the theory comprises four factors that explain much of the variation in outcomes (for the natural environment and/or for participants) between different types of engagement. First, we use a narrative literature search to develop a new typology of stakeholder and public engagement based on agency (who initiates and leads engagement) and mode of engagement (from communication to coproduction). We then propose a theory to explain the variation in outcomes from different types of engagement: (1) a number of socioeconomic, cultural, and institutional contextual factors influence the outcomes of engagement; (2) there are a number of process design factors that can increase the likelihood that engagement leads to desired outcomes, across a wide range of sociocultural, political, economic, and biophysical contexts; (3) the effectiveness of engagement is significantly influenced by power dynamics, the values of participants, and their epistemologies, that is, the way they construct knowledge and which types of knowledge they consider valid; and (4) engagement processes work differently and can lead to different outcomes when they operate over different spatial and temporal scales. We use the theoretical framework to provide practical guidance for those designing engagement processes, arguing that a theoretically informed approach to stakeholder and public engagement has the potential to markedly improve the outcomes of environmental decision-making processes.