Changes in the composition of plant species induced by grassland degradation may alter soil respiration rates and decrease carbon sequestration; however, few studies in this area have been conducted. We used net primary productivity (NPP), microbial biomass carbon (MBC), and soil organic carbon (SOC) to examine the changes in soil respiration and carbon balance in two Chinese temperate grassland communities dominated by Leymus chinensis (undisturbed community; Community 1) and Puccinellia tenuiflora (degraded community; Community 2), respectively. Soil respiration varied from 2.5 to 11.9 g CO2 m-2 d-1 and from 1.5 to 9.3 g CO2 m-2 d-1, and the contribution of root respiration to total soil respiration from 38% to 76% and from 25% to 72% in Communities 1 and 2, respectively. During the growing season (May–September), soil respiration, shoot biomass, live root biomass, MBC and SOC in Community 2 decreased by 28%, 39%, 45%, 55% and 29%, respectively, compared to those in Community 1. The considerably lower net ecosystem productivity in Community 2 than in Community 1 (104.56 vs. 224.73 g C m-2 yr-1) suggests that the degradation has significantly decreased carbon sequestration of the ecosystems.