Previous studies have examined the effects of soil osmotic potential (Psi(s)) on net rates of mineralization and nitrification. Because net rates represent the difference between gross production and consumption processes, it is unclear which process is being affected. We used an N-15 isotopic dilution method to evaluate the effects of Psi(s) on gross rates of nitrification, ammonification, NH4+ assimilation, and NO3- assimilation, and net rates of nitrous oxide production in a Penoyer sandy loam at field capacity. To avoid creating specific ion toxicities that normally do not occur in this soil, we used a chemical equilibrium model to predict how solute concentrations in the soil solution change during evapo-concentration; then we used solutions containing these mixtures of solutes to create individual Psi(s) treatments. A nitrification potential assay was also performed to determine the effect of Psi(s) on nitrification rates at high substrate concentrations. In soil slurries with elevated NH4+ concentration (1110 mu M), nitrification rates declined exponentially with reduced Psi(s) (increased salt concentration); however, in soil samples incubated at field capacity without added NH4+ (9.7 mu M, or 2 mg N kg(-1)), the gross nitrification rate was independent of Psi(s). The differential response between slurries and soil at field capacity was attributed to differences in NH4+ concentrations, and indicated that the effects of Psi(s) were secondary to NH4+ concentrations in controlling nitrification rates. Nitrification rates in slurries declined more when a single salt (K2SO4) was used than when the mixture of salts that more closely approximated the solute composition predicted to occur in the field was used to lower Psi(s). This suggests that nitrifying bacteria are capable of adapting to specific ion toxicities. Gross rates of ammonification declined exponentially with decreased Psi(s) between 0 and -500 kPa but were independent of Psi(s) at potentials of -500 to -1750 kPa. Rates of microbial assimilation of NO3- exceeded NH4+ assimilation by a factor of 4, indicating that under NH4+ limited conditions substantial NO3- assimilation can occur. Microbial assimilation of both NH4+ and NO3- declined exponentially with decreased Psi(s), and were insignificant at <-1500 kPa Psi(s). Because NO3- assimilation declined more rapidly than gross nitrification, net nitrification rates actually increased with declining Psi(s). Rates of nitrous oxide (N2O) production were also inversely correlated with Psi(s). Our results indicate that in previous studies, measurement of net rates, use of inappropriate salts, and addition of substrate may have resulted in overestimation of the adverse effects of low Psi(s) on rates of N-transformations.