With the development of the construction industry, increasing concern over construction and demolition waste (CDW) has initiated a wave of environmental regulation by the government in order to reduce the environmental impact and ensure sustainable development. Research on behavioral decision-making can offer a theoretical basis for the government and individuals. This paper aims to study the behavioral decision-making of stakeholders in CDW recycling under environmental regulation. Considering the limited rationality of stakeholders and the difference in reference points, an evolutionary game model including contractors and manufacturers of construction materials is proposed based on the prospect theory of behavioral economics. The results indicate that, only when the perceived benefits of one or both stakeholders for participation under the environmental regulation exceed those for non-participation, can the CDW recycling system eventually evolve to a stable state in which both stakeholders choose to participate. In addition, factors such as the initial strategy, production cost, technology, subsidies, recycling benefits, and the degree of perception of the stakeholders, exert certain influences on the stable state. To attain the required stable state, the government should increase the subsidies for the stakeholders and strengthen the publicity regarding recycling effects to improve the perceived benefits.