A more detailed understanding of the soil nitrogen (N) cycling and the associated functional microbial groups of nitrous oxide (N2O) production under different management practices is essential for adopting proper practice to achieve sustainability of grassland systems. We investigated soil inorganic N, the potential emissions of N2O, and the abundance of nitrifying and denitrifying communities in different grazing management systems, grazing intensities and topographies in a semi-arid grassland of Inner Mongolia, China. Four grazing intensities (0, 3, 6, and 9 sheep ha−1) were applied in two management systems (traditional grazing; and mixed grazing with clipping) in flat or sloped (3–4°) blocks. Results showed that soil inorganic N, the gene abundance of amoA (ammonia monooxygenase) gene of ammonia-oxidizing archaea (AOA) and bacteria (AOB), and the narG (nitrate reductase) gene, as well as the potential rates of N2O production from nitrification (NN2O) and denitrification (DN2O) significantly decreased with the increase of grazing intensity, particularly in sloped plots; however the effect of increasing grazing intensity in decreasing soil inorganic N, gene abundance and potential N2O emissions was alleviated in mixed grazing and clipping system in flat plots, which resulted in greater potential N2O emissions in mixed grazing and clipping system than in traditional grazing system. Soil moisture was found to be the controlling factor for N2O production in traditional grazing system while soil organic matter and nutrients (total N, soil NH4 + and NO3 −) were most important in determining N2O production in mixed system. Our results suggest that after ten years of consistent grazing management, mixed grazing with clipping alleviated the suppressed N cycle under the traditional grazing, and changed the limiting factor for N2O production, shifting from soil moisture under traditional grazing to soil organic matter and nutrient status. The research highlights that mixed grazing with clipping can be considered as an effective management practice in alleviating a suppressed N cycle, and consequently the ecosystem recovery of this semi-arid grassland would likely be associated with an increase in N2O emissions.