Background and Aims Biochar has been shown to aid soil fertility and crop production in some circumstances. We investigated effects of the addition of Jarrah (Eucalyptus marginata) biochar to a coarse textured soil on soil carbon and nitrogen dynamics. Methods Wheat was grown for 10 weeks, in soil treated with biochar (0, 5, or 25 t ha−1) in full factorial combination with nitrogen (N) treatments (organic N, inorganic N, or control). Samples were analysed for plant biomass, soil microbial biomass carbon (MBC) and nitrogen (MBN), N mineralisation, CO2 evolution, community level physiological profiles (CLPP) and ammonia oxidising bacterial community structure. Results MBC significantly decreased with biochar addition while MBN was unaltered. Net N mineralisation was highest in control soil and significantly decreased with increasing addition of biochar. These findings could not be attributed to sorption of inorganic N to biochar. CO2 evolution decreased with 5 t ha−1 biochar but not 25 t ha−1. Biochar addition at 25 t ha−1 changed the CLPP, while the ammonia oxidising bacterial community structure changed only when biochar was added with a N source. Conclusion We conclude that the activity of the microbial community decreased in the presence of biochar, through decreased soil organic matter decomposition and N mineralisation which may have been caused by the decreased MBC.