Ammonia (NH₃) volatilization reduces nitrogen (N) use efficiency (NUE) and damages the environment, resulting in economic costs and human health threats. Side-deep fertilization decreases NH₃ volatilization and the fertilizer application amount but sometimes risks reducing rice yield because of an unstable N supply. Azolla incorporation can improve NUE and rice yield by biological N fixation in paddy fields. However, the effects of coupling side-deep fertilization with Azolla on NH₃ volatilization, NUE, and net economic benefits in rice cropping systems are unclear. Therefore, a two-year field trial was performed in the Taihu Lake region of China with five treatments: (i) a control with no N input (CK), (ii) conventional fertilization using the local practice with three-split broadcasting with 300 kg N ha⁻¹ (CN), (iii) reduced N fertilization with three-split broadcasting with 255 kg N ha⁻¹ (RN), (iv) reduced N fertilization with 60% of urea side-deep placement and with 40% broadcasting (RNS), and (v) combined RNS with Azolla (RNSA). In the two-year field observations, compared with CN, RN decreased NH₃ volatilization but tended to reduce rice yield and NUE, and RNS and RNSA significantly decreased NH₃ volatilization by 32.42%− 50.65% and 48.65%− 59.72% by decreasing floodwater NH₄⁺-N and pH. In addition, RNSA significantly increased NUE by 23.73% (26.92–30.89%) by enhancing rice root growth and N uptake compared to CN. Moreover, the economic cost of NH₃ volatilization in RNSA (548.07–590.67 CNY ha⁻¹) was notably lower than that of CN (1149.99–1302.51 CNY ha⁻¹). The RNSA achieved the maximum net economic benefits (24.72–25.75 * 10³ CNY ha⁻¹) with the minimum economic costs of NH₃ volatilization. The results provide theoretical support for guiding field production and government decision making.