Densely populated, intensively cropped highland areas in the subtropics are prone to erosion and declining soil fertility, making agriculture unsustainable. Permanent raised bed planting systems, as a form of conservation agriculture, have been developed to reduce production costs while conserving resources and sustaining the environment. In 2004, a new experiment with long term focus was started under rain fed conditions at El Batan (Mexico; 2,240 m a.s.l.; 19.31N, 98.50W; Cumulic Phaeozem), which aims at understanding the effects of (1) tillage (conventionally tilled or permanent raised beds), (2) residue management (retention or removal) and (3) N fertilizer application (0 or 120 kg N/ha) on N availability in a yearly maize/wheat rotation system. Incubation experiments were conducted to establish how the different treatments affect C and N dynamics in the soil. Tillage increases the availability of soil organic matter by soil aggregate disruption, enhancing C and N mineralization. Conventionally tilled raised beds with incorporation of crop residues increased the CO2 production rate. In both tillage systems, retention of maize or wheat residue without N fertilizer application led to N immobilization. In permanent raised beds, however, the immobilization due to residue retention could be compensated by application of N fertilizer, while conventionally tilled raised beds appeared to use the applied N fertilizer less efficiently.