Biofuels will help meet rising demands for energy and, ideally, limit climate change associated with carbon losses from the biosphere to atmosphere. Biofuel management must therefore maximize energy production and maintain ecosystem carbon stocks. Increasingly, there is interest in intercropping biofuels with other crops, partly because biofuel production on arable land might reduce availability and increase the price of food. One intercropping approach involves growing biofuel grasses in forest plantations. Grasses differ from trees in both their organic inputs to soils and microbial associations. These differences are associated with losses of soil carbon when grasses become abundant in forests. We investigated how intercropping switchgrass (Panicum virgalum), a major candidate for cellulosic biomass production, in loblolly pine (Pinus taeda) plantations affects soil carbon, nitrogen, and microbial dynamics. Our design involved four treatments: two pine management regimes where harvest residues (i.e., biomass) were left in place or removed, and two switchgrass regimes where the grass was grown with pine under the same two biomass scenarios (left or removed). Soil variables were measured in four 1-ha replicate plots in the first and second year following switchgrass planting. Under switchgrass intercropping, pools of mineralizable and particulate organic matter carbon were 42% and 33% lower, respectively. These declines translated into a 21% decrease in total soil carbon in the upper 15 cm of the soil profile, during early stand development. The switchgrass effect, however, was isolated to the interbed region where switchgrass is planted. In these regions, switchgrass-induced reductions in soil carbon pools with 29%, 43%, and 24% declines in mineralizable, particulate, and total soil carbon, respectively. Our results support the idea that grass inputs to forests can prime the activity of soil organic carbon degrading microbes, leading to net reductions in stocks of soil carbon. Active microbial biomass, however, is higher under switchgrass, and this microbial biomass is a dominant precursor of soil carbon formation. Future studies need to investigate soil carbon dynamics throughout the lifetime of intercropping rotations to evaluate whether increases in microbial biomass can offset initial declines in soil carbon, and hence, maintain ecosystem carbon stocks.