Green manure shows promise for the relief of the environmental pressure caused by successive farming and excessive applications of fertilizers. Soil microbes play an important role in the decomposition of green manure. However, few studies focused on the relationship between the release of nutrients and bacterial community diversity when different rates of green manure are applied. The aim of this study was to evaluate the dynamic changes in soil bacterial communities and nutrient release during the decomposition of the green manure Italian ryegrass (Lolium multiflorum L.) residues in a new type Italian ryegrass-rice (Oryza sativa L.) rotation (IRR) system in South China. Six different rates (P0–P5) of Italian ryegrass were added to rice-growing red soil (Ferralic Cambisol) and allowed to decompose for 40 d (sampled every 10 d). Nutrient release and soil properties were determined during the decomposition and Illumina reads of the 16S rRNA gene amplicons were used to analyse changes in the bacterial communities. The addition of residues increased both nutrient concentrations (e.g., total nitrogen, available nitrogen and available potassium) and the relative abundance of microbes involved in nutrient cycling (e.g., Proteobacteria, Bacteroidetes, Acidobacteria, and Gemmatimonadetes). Italian ryegrass residues had much faster rates of decomposition at 1–10 d, 11–20 d, and 21–30 d (from 183.2 to 238.1 g kg–1, on average) than that (45.6 g kg–1) at 31–40 d. Overall, the high green manure decomposition rates were accompanied by high similarities in bacterial community structures during decomposition. The nutrient cycle efficiency and bacterial community diversity were higher when the soils were treated with 40,170–44,895 kg ha–1 (P3–4) of green manure than other treatments. The average Shannon index values following the 44,895 kg ha–1 (P4) treatment were the highest among the different rates of residue application, and they were 6.42 at 10 d, 6.37 at 20 d, 6.29 at 30 d, and 6.53 at 40 d. The highest soil total nitrogen concentrations of 1.4–2.0 g kg–1 were obtained following the 40,170 kg ha–1 (P3) treatment, and seedling biomass increased the most under P3 treatment. In addition, soil total nitrogen and available potassium concentrations were significantly correlated with rice seedling biomass. This study demonstrates that the management of green manure application based on the IRR system facilitates rice growth by improving bacterial communities (composition and diversity) and soil fertility, and it provides a new perspective on the links between potential microbial community functions and organic agro-ecosystems.