Population growth and unrestricted development policies are driving low-density urbanization and fragmentation of peri-urban landscapes across North America. While private individuals own most undeveloped land, little is known about how their decision-making processes shape landscape-scale patterns of urbanization over time. We introduce a hybrid agent-based modeling (ABM) – cellular automata (CA) modeling approach, developed for analyzing dynamic feedbacks between landowners’ decisions to sell their land for development, and resulting patterns of landscape fragmentation. Our modeling approach builds on existing conceptual frameworks in land systems modeling by integrating an ABM into an established grid-based land-change model – FUTURES. The decision-making process within the ABM involves landowner agents whose decision to sell their land to developers is a function of heterogeneous preferences and peer-influences (i.e., spatial neighborhood relationships). Simulating landowners’ decision to sell allows an operational link between the ABM and the CA module. To test our hybrid ABM-CA approach, we used empirical data for a rapidly growing region in North Carolina for parameterization. We conducted a sensitivity analysis focusing on the two most relevant parameters—spatial actor distribution and peer-influence intensity—and evaluated the dynamic behavior of the model simulations. The simulation results indicate different peer-influence intensities lead to variable landscape fragmentation patterns, suggesting patterns of spatial interaction among landowners indirectly affect landscape-scale patterns of urbanization and the fragmentation of undeveloped forest and farmland.