Agroforestry, a climate-smart approach of integrating woody perennials with arable crops, is gaining significant importance for its potential to capture and store carbon from the atmosphere in the soil. Agroforestry appears to be a viable way to address the issue of climate change by promoting carbon sequestration through soil carbon sequestration, thereby ensuring enhanced benefits to the farmers in terms of gains at the field and economic level. This system has high potential to accomplish the goals of food security and climate change while simultaneously generating carbon credits for the local economy through sequestering carbon in both above- and belowground biomass. The carbon negation under agroforestry is governed through various drivers and processes, including soil organic matter, plant density regulation, species diversity, litter addition, rhizodeposition, and biomass production. By 2050, it is anticipated that the conversion of 630 million hectares of unproductive croplands to agroforestry systems will sequester carbon up to the range of 1.13–2.24 Pg C year−1 globally. Additionally, these systems contribute towards higher sequestration rates (600 Mt C year−1) as compared to forests and croplands. The conversion of forest land use to agricultural systems resulted in a 50%–61% loss in soil organic carbon (SOC) stocks. Furthermore, the cost-benefit analysis of carbon-negative solutions emphasizes the importance of considering multiple factors such as setup costs, maintenance, and potential income from carbon credits. Although agroforestry systems have an immense potential in providing various mitigation benefits, widespread adoption is hindered due to challenges like policy barriers and a lack of awareness. Research and development organizations should collaborate to promote agroforestry by identifying future areas of research and thereby designing effective systems so as to move towards sustainable and effective agroforestry systems. Moreover, there is a need to address climate change and promote sustainable development through various schemes and policies. Policies that integrate agroforestry systems with rural development, climate change mitigation, and economic incentives are required by governments and international organizations for wider-scale adoption to achieve carbon-negative goals.