Nitrate contamination in groundwater originates mainly from excessive use of fertilizers and uncontrolled discharge to land of incompletely-treated wastewater associated with agricultural activities. A systematic field investigation was carried out in a sub-catchment of Dianchi Lake, Kunming, Yunnan, China, into the hydrological, biological and geological processes of nitrogen transport and transformation in the aeration zone and aquifer system. In situ experiments showed that the quantity of NO(3)-N recharged into groundwater was related to fertilization. Nitrification and denitrification behaved quite differently but were affected by moisture content and Eh value. The vertical infiltration rate was controlled by the groundwater table and hydraulic conductivity of the soil. The existence of a zero-flux plane reflected the dynamics of water fluxes in the soil profile and Eh was measured in the aeration zone. In response to these factors, the nitrification rate was greatest in the top soil and reduced with the depth of soil; it was 6.53 mg/(kg.h) in the vegetated plot and 0.2-0.3 mg/(kg.h) in the unvegetated one. The denitrification rate in the unvegetated plot was 6.36 mg/(kg.h), and it was 2.79 mg/(kg.h) in the vegetated one.