Arbitration, as one of the most important alternative dispute resolution mechanisms, plays a significant role in reducing judicial delay, benefiting from expertise, preserving confidentiality, and decreasing court caseloads. Nevertheless, the effectiveness of arbitration in Iran’s legal system faces challenges such as limited judicial trust, institutional shortcomings, insufficient specialized training, and the absence of professional mechanisms for evaluating and organizing arbitrators. This study aims to identify the capacities and obstacles related to optimizing the institution of arbitration and to propose practical solutions for its improvement through examining the views of appellate judges in Fars Province. The research adopts a descriptive-analytical method and, in terms of data collection, a survey approach. Data were gathered through questionnaires completed by 22 appellate judges of Fars Province and then analyzed. The findings indicate that strengthening specialized arbitration training, establishing a system for evaluating and ranking arbitrators, reinforcing arbitration institutions, expanding the role of the Dispute Resolution Development Center, and increasing judicial trust and support are among the most important factors in improving arbitration performance. The results also show that optimizing this institution requires both legal and institutional capacity-building and a stronger connection between judicial policymaking and dispute resolution mechanisms.