To investigate the effects of biochar addition (1 or 3%) to the soil of a China fir plantation with or without litter, we conducted a 90-day incubation experiment. We also studied the C and N dynamics and the microbial community structure of the soil. In soil without litter, the application of biochar at a rate of 3% significantly decreased CO2 emissions, while addition of 1% biochar had no effect. Biochar application did not affect the net N mineralization rate but significantly reduced the NH4+ concentration after 90 days. In litter-enriched soil, biochar application had no significant effect on total CO2 emissions; however, application of 3% biochar significantly reduced the net N mineralization rate. Biochar application to soil with or without litter immediately reduced the dissolved organic carbon (DOC) concentration independent of the application rate, which was primarily due to sorption of DOC by the biochar. Phospholipid fatty acid analysis demonstrated that both concentrations of added biochar to soil (with or without litter) altered the soil microbial community structure at the end of incubation, although the effect of biochar was not as strong as the effect of time or litter application. The effect of biochar addition alone on microbial community structure was inconsistent over time. Litter added to soil significantly increased fungi and reduced Gram-positive bacteria. In the presence of litter, biochar applied at both 1% and 3% significantly increased (p < 0.05) the proportion of actinomycete only at day 90. Our results indicate biochar as a potentially effective measure for C sequestration in the test soil of a China fir plantation, even in the presence of litter.