The global knowledge economy has turned higher education into a key player in societal development. Internationalization benefits higher education institutions in several aspects, such as improvement and visibility in international rankings, revenue generation via tuition fees and external funding, improvement of research and teaching quality, integration with academic communities and familiarization with scholarly attitudes. In this study, we provide insights into the challenges of internationalization faced by higher education institutions in Iran as a developing country. Several policies and practices have been adopted in Iran to improve internationalization efforts; however, these activities have had little impact on the quality of research and educational programs at Iran's universities. Understanding the challenges they face in a systematic way can help identify different factors and develop a set of suggestions to increase the quality and quantity of international cooperation. We formulate our suggestions based on the opportunities provided by the digitalization solutions in the aftermath of the COVID-19 pandemic and the increasing importance of the UN's Sustainable Development Goals in both global and national environments. We interviewed 15 faculty members in Iranian higher education institutions and 14 managers in charge of international affairs at universities in Iran. In addition, data extracted from three forums on Iranian higher education internationalization are analysed. Using a grounded theory approach, we group the challenges into macro-, institutional and individual levels and then suggest a number of practices and policies to increase the quantity and quality of internationalization efforts.