Carbon accumulation in the terrestrial biosphere could partially offset the effects of anthropogenic CO2 emissions on atmospheric CO2. The net impact of increased CO2 on the carbon balance of terrestrial ecosystems is unclear, however, because elevated CO2 effects on carbon input to soils and plant use of water and nutrients often have contrasting effects on microbial processes. Here we show suppression of microbial decomposition in an annual grassland after continuous exposure to increased CO2 for five growing seasons. The increased CO2 enhanced plant nitrogen uptake, microbial biomass carbon, and available carbon for microbes. But it reduced available soil nitrogen, exacerbated nitrogen constraints on microbes, and reduced microbial respiration per unit biomass. These results indicate that increased CO2 can alter the interaction between plants and microbes in favour of plant utilization of nitrogen, thereby slowing microbial decomposition and increasing ecosystem carbon accumulation.