Nitrogen (N) is considered to be the second most limiting factor after water for biomass production in arid and semiarid ecosystems. Biological soil crusts (BSCs) play an important role as N providers, especially in sand dunes. In this study, we looked at the levels of inorganic N forms and the abundance of N-cycle-associated genes in five well-defined BSCs along a transect of a sand dune in the Negev Desert. Four of the crusts are cyanobacterial crusts (with crust A occupying the interdune and the south-facing slope, and the remaining crusts, B, C, D occupying the north-facing slope) and one moss-dominated crusts (E), inhabiting the interface between the north-facing footslope and the interdune, where it benefits from additional water supply by subsurface flow and runoff. Although all crusts contained comparable numbers of the nifH gene (a marker for N2 fixation), the accumulation of inorganic N forms followed the order A ≈ B < C ≈ D < E, with crust E characterized by exceptionally high levels of ammonium and nitrite. All crusts were dominated by bacterial ammonia oxidizers, while significant numbers of archaeal ammonia oxidizers were detected only in crust E. Likewise, the highest numbers of Nitrobacter spp. (nitrite oxidizers) were detected in crust E. All crusts were dominated by nirK-type denitrifiers over nirS ones. The accumulation of nitrite in crust E suggested a significant inhibition of nitrite oxidation, possibly due to oxygen limitation following subsurface flow. It is suggested that temporal disparity between aerobic and anaerobic conditions results in partial nitrification and the accumulation of ammonia and nitrite in crust E, being also responsible for the higher emission of nitrous oxide. Our findings show a close link between the abiotic conditions, crust type and N dynamics, thus highlighting the importance of small-scale hydrological processes in the N cycle of arid lands.