The connection between moisture and nitrogen (N) transformation in soils is key to understanding N losses, particularly nitrate (NO3−) losses, and also provides a theoretical framework for appropriate water management in agricultural systems. Thus, we designed this study to provide a process-based background for management decision. We collected soil samples from the long-term field experiment in subtropical China, which was designed to examine tobacco and rice rotations under a subtropical monsoon climate. The field experiment was established in 2008 with four treatments: (1) no fertilization as control; (2) N, phosphorus (P), and potassium (K) fertilizers applied at recommended rates; (3) N fertilizers applied at rates 50% higher than the recommended amounts and P and K fertilizers applied at recommended rates; and (4) N, P, and K fertilizers applied at recommended rates with straw incorporated (NPKS). Soil samples were collected during the unsaturated tobacco-cropping season and saturated rice-cropping season and were incubated at 60% water holding capacity and under saturated conditions, respectively. Two 15N tracing treatments (15NH4NO3 and NH415NO3) and a numerical modeling method were used to quantify N transformations and gross N dynamics. Autotrophic nitrification was stimulated by N fertilizer both under unsaturated and saturated conditions. The rate of NO3− consumption (via immobilization and denitrification) increased under the NPKS treatment under saturated conditions. Secondly, the rates of processes associated with ammonium (NH4+) cycling, including mineralization of organic N, NH4+ immobilization, and dissimilatory NO3− reduction to NH4+, were all increased under saturated conditions relative to unsaturated conditions, except for autotrophic nitrification. Consequently, NO3−-N and NH4+-N concentrations were significantly lower under saturated conditions relative to unsaturated conditions, which resulted in reduced risks of N losses via runoff or leaching. Our results suggest that under saturated conditions, there is a soil N conservation mechanism which alleviates the potential risk of N losses by runoff or leaching.