The present study takes two small watersheds (F : forest, FA : forest/farmland) with different land uses as the study areas, which are located in the hilly area of subtropical China. The rain water and stream water samples were collected from March 2007 to February 2009 and were determined for NH4(+) -N and NO3(-) -N, to estimate nitrogen (N) budgets and source-sink characteristics of the two studied watersheds. The results show that inorganic N input in rain water is 16.72 kg x (hm2 x a)(-1), in which NH4(+)-N accounts for 56%; inorganic N output in stream water in the two small watersheds (F, FA) is 5.31 kg x (hm2 x a)(-1) and 8.21 kg x (hm2 x a)(-1) respectively, in which NO3(-) -N accounts for 75% -82%, indicating that agricultural activities in the watershed have increased N output in runoff. Total inorganic N input by atmospheric dry and wet deposition is 20.06-23.41 kg x (hm2 x a)(-1), which equals to approximately 13% -15% of the local N fertilizer application. The net production of H+ caused by N deposition and transformations in the two small watersheds (F, FA) is 355 mol x (hm2 x a)(-1) and 461 mol x (hm2 x a)(-1) respectively, indicating that agricultural activities lead to accelerated soil acidification. Based on N budgets, the net retention of N in the two small watersheds (F, FA) is 13.35-16.70 kg x (hm2 x a)(-1) and 17.89-23.38 kg x (hm2 x a)(-1) respectively. N retention efficiency in the FA watershed (33%-40%) as impacted by agricultural activities is much lower than that in the forested watershed (F) (65%-70%), indicating that the forest ecosystem in subtropical China is still a sink for N, but agricultural activities have decreased the nitrogen-sink potential of the ecosystem.