The 2015 Bank of Scotland Quality of Life survey placed Shetland second and the Western Isles third.
Orkney secured the top spot for the third consecutive year by scoring highly in categories including health, employment, low crime rates and good weather.
It also boasted a low population density.
The survey reported that Orkney had the highest employment rate in Scotland, with 86.3% of adult residents being in work, ahead of Aberdeenshire (81.7%) and Shetland (80.9%).
These were above the Scotland average of 73.8% and the UK average of 72.9%.
Low traffic and low rainfall were also highlighted.
Bank of Scotland economist Nitesh Patel said: "It tends to be the northern parts of Scotland that come out best for quality of life each year, due to the lower population, higher employment rate and low crime rates.
"Orkney rates very positively in many categories, which has helped it secure the number one spot for the third year, although it ranks the best in only two categories - highest employment and lowest burglary rate.
"The Western Isles in particular have seen a marked change in comparison to last year, and have moved up four places to now sit in third.
"It's not so good news for Edinburgh though, as we have seen it drop to 21st place this year, from 15th in 2014."
The sunniest place in Scotland was said to be Aberdeen.
Orkney has retained its title as the best place in Scotland to live in a new survey.