Microbially mediated N fixation is widespread in rice paddy ecosystems and crucial in maintaining soil fertility. However, our understanding of the factors determining the distribution of free-living diazotrophic microorganisms that perform this process in paddy fields is limited. This study investigated the spatial distribution and factors influencing presence and potential activity of free-living microorganisms capable of N2 fixation in addition to dissimilatory nitrate reduction to ammonium (DNRA), anaerobic ammonium oxidation (anammox), and denitrification in 50 paddy soils across China. Using 15N isotope tracing in laboratory incubations and microbial community analysis via metagenomics, we demonstrate that paddy soils may represent a previously underappreciated hotspot for N2 fixation with mean potential rates of 24.4 ± 17.8 nmol N g−1 h−1, 10-fold higher than DNRA (2.55 ± 0.4 nmol N g−1 h−1), and could counterbalance a portion of N2 losses through anammox and denitrification (9.24 ± 1.1 nmol N g−1 h−1). Site longitude and organic carbon (C) concentrations, as well as the diazotrophic community composition, were the dominant abiotic and biotic factors accounting for regional variations in potential N2 fixation rates. The N2 metabolic pathways predicted from the metagenome-assembled genomes (MAGs) revealed significant co-occurrence of the diazotroph marker gene nifH with denitrification-associated genes (nirS/K and nosZ) and organic C oxidation-related genes (yiaY and galM). Furthermore, enzymes involved in organic C oxidation, particularly glycoside hydrolases and glycosyltransferases, were not only phenotypically correlated with free-living N2 fixation rates but were also identified in nifH-containing MAGs, indicating the heterotrophic capabilities of diazotrophs in paddy soils. Collectively, our results underscore the substantial contribution of free-living N2 fixation to soil N fertility in paddy fields, and highlight the importance of coupling organic C oxidation with nitrate reduction to enhance N2 fixation.