Changes in the functional use of urban land have become an important challenge affecting urban structure and sustainable development. An-Najaf City, Iraq, has experienced substantial functional transformation over the past two decades, including residential expansion, commercial growth, industrial development, and the emergence of informal settlements. This study analyzes functional land-use changes in An-Najaf City and predicts future transformation using a Markov chain model. Land-use data for 2005, 2015, and 2025 were obtained from official records, geographic information system (GIS)-based land-use maps, recent satellite imagery, and field verification. Transition probability matrices were constructed for the 2005–2015 and 2015–2025 periods, and the 2015–2025 matrix was used to predict the functional land-use distribution for 2035. The results show that residential and commercial land uses increased substantially from 2005 to 2025, with commercial land recording the largest increase, from 200.30 ha to 2,204.30 ha. Informal settlements were also identified as an important factor affecting urban functional change. Based on the Markov prediction, residential land is projected to increase to approximately 5,204.7 ha by 2035, slum areas to 482.3 ha, and industrial land to 876.4 ha. By contrast, commercial land is projected to decline to approximately 1,816.1 ha, while the “Others” category is expected to decrease to 204.5 ha. Since the prediction is applied within the defined 2025 study boundary, the total land area remains constant, and the results represent internal functional transformation rather than further physical urban expansion. The findings highlight the need for planning policies that control informal settlement growth, manage residential and industrial expansion, protect supporting urban functions, and promote balanced urban development in An-Najaf City.