Context Compaction removal and organic amendment application are commonly used to mitigate the compaction-induced declines in crop yield, soil carbon (C) and soil health. However, the response of microbial activities and nutrient pools to the combination of mill-mud amendments and decompaction in the soil profile are not fully understood. Aims A field trial was conducted at Burdekin, Australia, to investigate the effects of different decompaction managements on soil nutrient cycling, associated biological activities and sugarcane yield. Methods This experiment included four treatments: control (CK, without mill-mud), mill-mud shallow furrow (MS), deep trenching without mill-mud (DT) and deep trenching mill-mud application (MD). Key results The MD treatment increased concentrations of hot water extractable organic C by 30–70% and hot water extractable total nitrogen (N) by 30–90% at the application depth. Soil microbial biomass C and N were also higher in mill-mud applied layers. Mill-mud applied treatments increased plant cane yield by 7% (MS treatment) and 14% (MD treatment) compared to CK. The DT treatment also increased plant cane yield by 11% compared to CK. Conclusion The MD treatment increased the supply of organic C and nutrients to the microbial community within the entire soil profile, enhanced nutrient cycling processes, improved soil environmental conditions and soil health for sugarcane growth and thus increased sugarcane productivity. Implications Further research should focus on microbial community composition shifts to further explore the mechanisms responsible for soil microorganism regulation of nutrient cycling in sugarcane farming systems.