Understanding carbon (C) cycling and sequestration in vegetation and soils, and their responses to nitrogen (N) deposition, is important for quantifying ecosystem responses to global climate change. Here, we describe a 2-year study of the C balance in a temperate grassland in northern China. We measured net ecosystem CO2 exchange (NEE), net ecosystem production (NEP), and C sequestration rates in treatments with N addition ranging from 0 to 25 g N m−2 year−1. High N addition significantly increased ecosystem C sequestration, whose rates ranged from 122.06 g C m−2 year−1 (control) to 259.67 g C m−2 year−1 (25 g N). Cumulative NEE during the growing season decreased significantly at high and medium N addition, with values ranging from −95.86 g C m−2 (25 g N) to 0.15 g C m−2 (5 g N). Only the highest N rate increased significantly cumulative soil microbial respiration compared with the control in the dry 2014 growing season. High N addition significantly increased net primary production (NPP) and NEP in both years, and NEP ranged from −5.83 to 128.32 g C m−2. The C input from litter decomposition was significant and must be quantified to accurately estimate NPP. Measuring C sequestration and NEP together may allow tracking of the effects of N addition on grassland C budgets. Overall, adding 25 or 10 g N m−2 year−1 improved the CO2 sink of the grassland ecosystem, and increased grassland C sequestration.