Small waters, like ponds, are the most abundant freshwater environments, and are increasingly recognized for their function in ecosystem service delivery. In agricultural watershed, artificial ponds play an essential role in reducing nitrogen pollution. However, until now artificial ponds remain the least investigated part of water environments. The importance of microbial activities has seldom been discussed, which makes the microbial pathways and processes rates in nitrogen removal poorly understood. To illustrate the role of artificial ponds in microbial nitrogen removal in agricultural watersheds, 21 pond sediments and 11 soils are collected in an agricultural watershed of China. Results show that surface sediments in ponds carry significantly higher dissolved inorganic nitrogen (9.1–21.9 mg/kg) and total organic matter (64.8–113.0 g/kg) compared to the surrounding agricultural soils. High rates of microbial nitrogen removal in ponds (12.4–25.5 nmol N g⁻¹ h⁻¹) are observed, which are 2–9 times higher than those in dryland soils. In pond sediments, denitrification dominates (> 90% N-loss) the microbial nitrogen removal process with only a minor contribution of anaerobic ammonium oxidation. A high potential of N₂O production (up to 9.4 nmol N g⁻¹ h⁻¹) occurs in ponds along with the rapid nitrogen removal. For denitrifier genes, nir gene are always more abundant than nosZ gene. Additionally, the nirS gene is more abundant under flooded conditions, while nirK gene prefers higher dissolved oxygen and NO₃⁻ in drylands. These findings highlight the ecosystem function of ponds in agricultural watersheds, and provide new ideas on pollution control and global nitrogen cycling.