The impacts of tree and horticultural plantations, and grassland on soil characteristics in the degraded hills of Chittagong District, Bangladesh are reported on this paper. The carbon sequestration potential and the present value of carbon revenue flow were also estimated for the degraded hills of Chittagong using A. auriculiformis plantations for the purpose. The results showed that the change of land use from degraded hill to vegetation cover had altered the physico-chemical characteristics of soil in the study area. The organic carbon concentration and storage under vegetated land uses were significantly (p < 0·05) higher than those in the degraded hill areas. The results also showed that about 17 million megagram carbon (MgC) could be sequestered in the degraded hill areas of Chittagong District by planting A. auriculiformis trees in a 15-year rotation. The present value of revenue flow generated by this sequestration at the current international market carbon price and assuming a realistic market interest rate could be as high as US$ 326 million. The net present value of the revenue stream is expected to be positive. Copyright © 2011 John Wiley & Sons, Ltd.