Nitrous oxide (N2O) is the predominant ozone-depleting substance and contributes approximately 6% to overall global warming1, 2. Terrestrial ecosystems account for nearly 70% of total global N2O atmospheric loading, of which at least 45% can be attributed to microbial cycling of nitrogen in agriculture3. The reduction of N2O to nitrogen gas by microorganisms is critical for mitigating its emissions from terrestrial ecosystems, yet the determinants of a soil’s capacity to act as a source or sink for N2O remain uncertain4. Here, we demonstrate that the soil N2O sink capacity is mostly explained by the abundance and phylogenetic diversity of a newly described N2O-reducing microbial group5, 6, which mediate the influence of edaphic factors. Analyses of interactions and niche preference similarities suggest niche differentiation or even competitive interactions between organisms with the two types of N2O reductase. We further identified several recurring communities comprised of co-occurring N2O-reducing bacterial genotypes that were significant indicators of the soil N2O sink capacity across different European soils.