Background <p>Deforestation for terraced orchards, a common agricultural development pattern in mountainous ecosystems, drastically modifies soil physicochemical and biological properties. This conversion can affect soil microbial carbon use efficiency (CUE), which is a crucial indicator of soil carbon dynamics. However, the impact of this conversion on CUE remains unclear. Understanding how deforestation affects CUE will help predict soil carbon dynamics and guide the development of sustainable ecosystem strategies in fragile mountainous areas.</p> Methods <p>Herein, the response of CUE to environmental variations induced by deforestation for terraced orchards in an arid valley was explored. We quantified CUE using the ¹⁸O-labeled water addition method. To identify the underlying driving factors, soil properties and microbial parameters were measured concurrently.</p> Results <p>Microbial CUE declined significantly after forest conversion to terraced orchards. Multiple factors, including soil micro-environmental conditions, stoichiometric traits, enzymatic properties, and microbial community attributes, were all closely associated with CUE. Furthermore, hierarchical partitioning analysis revealed soil stoichiometric traits as the primary drivers of CUE reduction, especially traits associated with the C:N and C:P ratios. During the conversion process, mechanical compaction and horizon inversion increased soil bulk density and clay content, thereby reducing soil aeration. These micro-environmental constraints were closely linked to intensified imbalances in the C:N and C:P ratios between microbes and soil. Along with the reduced soil C:N ratio, these stoichiometric shifts made it more difficult for microorganisms to obtain resources. Therefore, microbial C limitation intensified, soil microbes shifted from being primarily limited by P in forests to being co-limited by C and P in terraced orchards, which in turn stimulated greater microbial investment in resource-acquiring hydrolytic enzymes. Consequently, CUE declined because microbial growth decreased more significantly than microbial respiration.</p> Conclusion <p>In summary, deforestation for terraced orchards in the arid valley reduced CUE by constraining soil micro-environments and resource conditions. These findings advance our understanding of CUE variations following deforestation and have important implications for soil carbon cycling in vulnerable mountain ecosystems.</p>