High nitrogen (N) fertiliser rates are usually applied to increase agricultural yields, leading to high nitrous oxide (N2O) emissions. This is a greenhouse gas that contributes to climate change and depletes the ozone layer. This study aimed to optimise N use efficiency and quantify N2O emission factors (EF1) by measuring the effect of N rates on the yield of a potato-cover crop rotation, apparent N use efficiency (NUE) and N2O emissions. The two-year experiment was carried out on volcanic soils (1.6% carbon, 1.4% N) in southern Chile (40°52′ S, 73°03′ W). Three N application rates were evaluated (80, 150 and 300 kg N ha−1), 35% of which was applied at the planting stage (granular) and 65% at the tubering stage. A control treatment with no N addition was also included. Reducing N fertilisation to 80 kg N ha−1 increased NUE by three times, reduced N2O-N emissions by 33% and reduced emission intensity by 27% without a detrimental impact on crop yield and marketable tuber calibre. No significant difference (p < 0.05) was observed in the N2O emission factor (EF1) because of a low rainfall year. The results suggest that in rainfed agriculture systems, N fertiliser application can be significantly reduced without sacrificing potato yield, favouring the economic and environmental sustainability of potato production.