Biological carbon fixation is an important part of global carbon cycling and ecology. Fixation that took place 3,500 million years ago is recorded in the laminated sedimentary rock structures known as stromatolites, which are fossilized remains of microbial mat communities. Stromatolites are the most abundant type of fossil found in the Proterozoic (2,500 to 590 Myr ago), but they then declined, possibly because of predation and competition. Using modern microbial mats as analogues for ancient stromatolites, we show that the rate of carbon fixation is higher at the greater levels of atmospheric CO2 that were probably present in the past. We suggest that carbon fixation in microbial mats was not carbon-limited during the early Precambrian, but became carbon-limited as the supply of inorganic carbon decreased. Carbon limitation led to a lower rate of carbon fixation, especially towards the end of the Precambrian. Thus, another reason for the decline of the stromatolites could have been a decrease in available CO2.