Nitrogen (N) and phosphorus (P) availability strongly affects carbon (C) cycling and storage in terrestrial ecosystems. Nutrient addition can increase C inputs into soil via increased above- and belowground plant productivity, but at the same time can accelerate organic matter decomposition in the soil. The mechanisms underlying these effects on soil organic C (SOC) dynamics remain unclear, especially in nutrient-limited alpine ecosystems that have been subjected to increasing N and P availability in recent decades. The aim of this study was to clarify the mechanisms underlying SOC decomposition and stabilization in an alpine grassland soil after four years of N and P additions. The soil aggregate size distribution, microbial community structure (lipid biomarkers), microbial C use efficiency (CUE) and microbial necromass composition (amino sugar biomarkers) were analyzed. Nutrient addition increased dominance of fast-growing bacteria (copiotrophs), while P addition alone intensified the competitive interactions between arbuscular mycorrhizal and saprotrophic fungi. These changes led to decreases in the microbial CUE of glucose by 1.6–3.5% and of vanillin by 8.5%, and therefore, reduced SOC content in the topsoil. The total microbial necromass remained unaffected by nutrient addition, but the contribution of fungal necromass to SOC increased. The increased abundance of arbuscular mycorrhizal fungi and fungal necromass under elevated N availability raised the mass proportion of soil macroaggregates (>250 μm) by 16.5–20.3%. Therefore, fungi were highly involved in macroaggregation following N addition, and so, moderated the SOC losses through enhanced physical protection. Overall, the complex interactions between microbial physiology (CUE), necromass composition (amino sugars) and physical protection (macroaggregation) in mediating SOC dynamics in response to nutrient enrichment were disentangled to better predict the capability of alpine grassland soils to act as a C sink or source under global change.