In the context of the ongoing energy transition away from fossil fuels the Dutch government sees great potential in the district heating sector as a key sector to reduce greenhouse gas emissions from the heat provision sector. In addition, because of the fuel-flexibility of heat production facilities for district heating, district heating may also contribute to lowering the energy dependency of the Dutch energy sector. In order for the district heating sector to grow and increase its share of renewable heat production there is however a need to adapt the current regulatory framework such that the relative attractiveness of district heating versus other forms of heating is improved. In this paper a market design approach is presented for the regulatory framework of the Dutch district heating sector. The design challenge is conducted by combining theoretical insights from economic literature and empirical evidence drawn from international case-studies of alternative market models for the district heating sector. Two new, distinct, market models are suggested for the Dutch district heating sector, which both may (1) foster the growth of the district heating sector, including increasing the share of renewable heat production, and (2) facilitate the transition towards more sustainable practices in the overall heat provision system. Future research could focus on conducting more case-studies in order to improve the quality of the arguments for and against specific policy instruments in the design space. In addition, future research could also focus on improving the assessment of the expected performance of the market models in practice through modelling and simulation.