Farming practices involving stubble burning and excessive tillage in Australia have led to losses of organic matter from the soil. Crop residue retention and reduced tillage practices can reverse these trends, but changes in organic matter levels are evident only after a long term. Microbial biomass (MB), the living portion of soil organic matter, responds rapidly to changes in soil and crop management practices. We evaluated changes in microbial biomass and microbial activity in the first year following the modification of stubble management and tillage practices on a red earth near Harden, New South Wales. Following an oat crop harvested late in 1989, seven treatments involving stubble and tillage management were applied in February 1990. Wheat was planted in May 1990. Measurements of total organic carbon (C) and total nitrogen (N) in the top 15 cm of soil indicated no significant changes after 1 year, although there was a significant effect on the distribution of C and N. However, significant changes in MB were observed in the first year. Microbial biomass C in the top 5 cm of the soil ranged from 25 to 52 g C m-2 and these levels dropped by 50% or more with each 5 cm depth. Implementation of treatments altered MB, particularly in the top 5 cm where MB-C and MB-N were significantly greater in stubble-retained than in the top 5 cm where MB-C and MB-N were significantly greater in stubble-retained than in the stubble-burnt treatments, and in the direct drill treatment than in the stubble-incorporated treatment. Microbial biomass in soil increased during the growth of wheat in all treatments, but this was slower in the standing stubble-direct drill treatment, probably due to the delay in the decomposition of stubble. Microbial respiration, which was concentrated in the surface 5 cm of soil in all treatments, was greatest in the direct drill treatments. Microbial activity below 5 cm was higher with stubble incorporation than with direct drill. Specific microbial activity (microbial respiration per unit MB) had the greatest response to tillage at 10-15 cm depth. Microbial quotients (MB as a percentage of C or N) responded to changes in tillage but not significantly to stubble retention. Our studies, during the first year following the modification of stubble management and tillage practices, suggested that changes in MB and microbial activity may be sensitive and reliable indicators of long-term changes in organic matter in soils.