An open incubation and leaching study was conducted under controlled temperature (25°C) and moisture conditions to measure the N mineralisation rate in soil amended with dairy pond sludge. The dairy pond sludge was applied at 3 different rates equivalent to 0, 200, and 400 kg N/ha. The incubation was conducted at 3 different soil moisture potentials (0, -3, and -13 kPa). Following each 2-week period of incubation, the soil was leached with 2 pore volumes of deionised water to remove the mineralisation products. Mineralisation products in the leachate and enzyme activities, microbial biomass C and N, pH, and water-soluble C in the soil were determined. The incubation lasted 18 weeks. Rapid release of nitrate occurred during the first 6 weeks of incubation, followed by a slow release over the remainder of the incubation period. Although the total amount of N released in the 200 kg N/ha treatment (169 mg N/kg soil) was less than in the 400 kg N/ha treatment (206 mg N/kg soil), when expressed as a percentage of the organic N applied, the amount of N released at the lower rate (18·4%) was greater than that at the higher rate of sludge treatment (13·0%). Rapid nitrification decreased the soil leachate ammonium concentration and the soil pH. Soil microbial biomass, water-soluble C, and deaminase activity were significantly increased after the addition of dairy pond sludge. The increase in soil microbial biomass observed was probably due to the increased water-soluble C and nutrients that stimulated the soil microbial growth. The rapid N release and nitrification rates observed were attributed to the low C : N ratio (12·7), high ammonium content (145 mg N/kg) of the dairy pond sludge used, and the optimum moisture and temperature conditions. The narrow range of soil water potential conditions did not have any significant effect on N release rate or amount.