Although, happiness has been evaluated by many researchers, there are very limited studies on happy environment, specifically happy cities. In addition, different methods that have been introduced for measuring happiness by previous studies have several major shortcomings. Firstly, happiness is considered equivalent to satisfaction or the quality of life. Secondly, the majority of these methods are not easy to follow and it is difficult to connect them to design process. Furthermore, these methods support only a limited number of indicators and majority of them are not related to the happy environment. Thus, this paper reviews prominent studies on happiness evaluations and happy environment to identify effective indicators for happy cities. It also attempts to highlight current happiness evaluation methods that consider happy environment to determine how various studies assess cities for happiness. The weaknesses and strengths of different evaluation methods are discussed in this paper to propose a better way to assess happy cities. A systematic review is used to identify indicators for happy cities. Overall, socio-economic factors, environmental factors (e.g., air pollution and temperature), geographical location and facilities management are effective variables for happy cities. This study discusses the challenges in happiness evaluation and attempts to introduce new objectives for futures studies. The results of this study can be used to propose strategies to have happier cities. © 2016 by MIP.