Forests of the Midwestern United States are an important source of fiber for the wood and paper products industries. Scientists, land managers, and policy makers are interested in using woody biomass and/or harvest residue for biofuel feedstocks. However, the effects of increased biomass removal for biofuel production on forest production and forest system carbon balance remain uncertain. We modeled the carbon (C) cycle of the forest system by dividing it into two distinct components: (1) biological (net ecosystem production, net primary production, autotrophic and heterotrophic respiration, vegetation, and soil C content) and (2) industrial (harvest operations and transportation, production, use, and disposal of major wood products including biofuel and associated C emissions). We modeled available woody biomass feedstock and whole-system carbon balance of 220 000 km2 of temperate forests in the Upper Midwest, USA by coupling an ecosystem process model to a collection of greenhouse gas life-cycle inventory models and simulating seven forest harvest scenarios in the biological ecosystem and three biofuel production scenarios in the industrial system for 50 years. The forest system was a carbon sink (118 g C m−2 yr−1) under current management practices and forest product production rates. However, the system became a C source when harvest area was doubled and biofuel production replaced traditional forest products. Total carbon stores in the vegetation and soil increased by 5–10% under low-intensity management scenarios and current management, but decreased up to 3% under high-intensity harvest regimes. Increasing harvest residue removal during harvest had more modest effects on forest system C balance and total biomass removal than increasing the rate of clear-cut harvests or area harvested. Net forest system C balance was significantly, and negatively correlated (R2 = 0.67) with biomass harvested, illustrating the trade-offs between increased C uptake by forests and utilization of woody biomass for biofuel feedstock.