Nitrous oxide (N2O) is a potent greenhouse gas that is produced during microbial nitrogen transformation processes such as nitrification and denitrification. Soils represent the largest sources of N2O emissions with nitrogen fertilizer application being the main driver of rising atmospheric N2O concentrations. Soil biochar amendment has been proposed as a promising tool to mitigate N2O emissions from soils. However, the underlying processes that cause N2O emission suppression in biochar-amended soils are still poorly understood. We set up microcosm experiments with fertilized, wet soil in which we used 15N tracing techniques and quantitative polymerase chain reaction (qPCR) to investigate the impact of biochar on mineral and gaseous nitrogen dynamics and denitrification-specific functional marker gene abundance and expression. In accordance with previous studies our results showed that biochar addition can lead to a significant decrease in N2O emissions. Furthermore, we determined significantly higher quantities of soil-entrapped N2O and N2 in biochar microcosms and a biochar-induced increase in typical and atypical nosZ transcript copy numbers. Our findings suggest that biochar-induced N2O emission mitigation is based on the entrapment of N2O in water-saturated pores of the soil matrix and concurrent stimulation of microbial N2O reduction resulting in an overall decrease of the N2O/(N2O + N2) ratio.