Rapid population growth, urbanization, and diverse production materials have led to a surge in municipal solid waste (MSW), harming the environment, climate, and sanitation. Despite China’s efforts to implement MSW segregation policies, results have been unsatisfactory. Research often emphasizes public participation, with less focus on the entire policy implementation process. This paper employed Smith’s theoretical model to comprehensively analyze the challenges of implementing a MSW segregation policy, using qualitative methods and secondary data from literature and policy documents. The findings revealed challenges at four levels: policy formulation, implementing agencies, target groups, and the external environment. Issues include policy ambiguity, unclear authority, government-enterprise cross-functionality, casual attitudes, implementer shortages, poor public participation, and economic disparities. To address these, the study recommends enhancing public engagement, clarifying responsibilities among agencies, and increasing financial support for disadvantaged areas to improve policy implementation.