A lysimeter experiment with undisturbed soil profiles was carried out to study nitrogen cycling and losses in a paddy soil with applications of coated urea and urea under a rice-wheat rotation system in the Taihu Lake region from 2001 to 2003. Treatments for rice and wheat included urea at conventional, 300 (rice) and 250 (wheat) kg N ha-1, and reduced levels, 150 (rice) and 125 (wheat) kg N ha-1, coated urea at two levels, 100 (rice) and 75 (wheat) kg N ha-1, and 150 (rice) and 125 (wheat) kg N ha-1, and a control with no nitrogen arranged in a completely randomized design. The results under two rice-wheat rotations showed that N losses through both NH3 volatilization and runoff in the coated urea treatments were much lower than those in the urea treatments. In the urea treatments N runoff losses were significantly (P < 0.001) positively correlated (r = 0.851) with applied N. N concentration in surface water increased rapidly to maximum two days after urea application and then decreased quickly. However, if there was no heavy rain within five days of fertilizer application, the likelihood of N loss by runoff was not high. As the treatments showed little difference in N loss via percolation, nitrate N in the groundwater of the paddy fields was not directly related to N leaching. The total yield of the two rice-wheat rotations in the treatment of coated urea at 50% conventional level was higher than that in the treatment of urea at the conventional level. Thus, coated urea was more favorable to rice production and environmental protection than urea. A lysimeter experiment with undisturbed soil profiles was carried out to study nitrogen cycling and losses in a paddy soil with applications of coated urea and urea under a rice-wheat rotation system in the Taihu Lake region from 2001 to 2003. Treatments for rice and wheat included urea at conventional, 300 (rice) and 250 (wheat) kg N ha-1, and reduced levels, 150 (rice) and 125 (wheat) kg N ha-1, coated urea at two levels, (wheat) kg N ha-1, and 150 (rice) and 125 (wheat) kg N ha-1, and a control with no nitrogen arranged in a completely randomized design. The results under two rice-wheat rotations showed that N losses through both NH3 volatilization and runoff in the coated urea treatments were much lower than those in the urea treatments. In the urea treatments N runoff losses were significantly (P <0.001) positively correlated (r = 0.851) with applied N. N concentration in surface water increased rapidly to maximum two days after urea application and then decreas ed quickly. However, if there was no heavy rain within five days of fertilizer application, the likelihood of N loss by runoff was not high. As the treatments showed little difference in N loss via percolation, nitrate N in the groundwater of the paddy fields The total yield of the two rice-wheat rotations in the treatment of coated urea at 50% conventional level was higher than that in the treatment of urea at the conventional level. Thus, coated urea was more favorable to rice production and environmental protection than urea.