The contributions of urban forests and green spaces to sustainable development have been confirmed. Meanwhile, cities worldwide have shown that investments in urban forestry can greatly contribute to citizens’ quality of life. This study was conducted in urban forests in the Dadu Terrace of Taichung City, central Taiwan, which were frequently disturbed by fires and had grassland severely invaded by Panicum maximum after the forest degraded. We sampled 46 plots in Dadu Terrace to understand the relationship between the soil seed bank and vegetation as well as to evaluate the feasibility of applying soil seed bank transfers for ecological restoration in Dadu Terrace. The grassland was dominated by Panicum maximum. Forest vegetation was distinguished by cluster analysis into five types, i.e., Ficus microcarpa type, Acacia confusa type, Litsea glutinosa type, Cinnamomum camphora type, and Trema orientalis type. In the aboveground survey, we recorded 141 vascular plants, including 129 seed plants and 12 ferns. There were 40 identified species of naturalized plants. A total of 29,914 seedlings were recorded in the soil seed bank, with an average seed density of 9634 seeds/m2 and a total of 91 species. There were 40 species of naturalized plants, accounting for 90.9% of the total seed reserves. This showed that Dadu Terrace was severely affected by the invasion of naturalized species. The species number and seed reserves of woody plants of the Panicum maximum type were significantly lower than those of forest vegetation. The composition of the soil seed bank was dominated by naturalized plants, indicating that the high frequency of fire reduced the proportion of native species and woody plants in the soil seed bank. Acacia confusa type was the main forest type in Dadu Terrace. Although several woody species and seed reserves were in its soil seed bank, the naturalized proportions were even higher. Trema orientalis type was the secondary forest type in Dadu Terrace; it had the smallest forest area. However, it was the only vegetation type with a greater tree seed abundance than herbs and the lowest proportion of naturalized seed abundance. Trema orientalis type vegetation has a relatively high soil transfer value for ecological restoration but lacks diversity. Our results revealed that the characteristics of the soil seed bank of Dadu Terrace make it challenging to restore the grassland to the forest by natural succession. Therefore, we suggest that artificial restoration is necessary for Dadu Terrace.