Spatial inaccessibility of soil organic carbon (SOC) for microbial decay within soil aggregates is an important stabilization mechanism. However, little is known about the stability of aggregates in semiarid grasslands and their sensitivity to intensive grazing. In this study, a combined approach using soil chemical and physical analytical methods was applied to investigate the effect of grazing and grazing exclusion on the amount and stability of soil aggregates and the associated physical protection of SOC. Topsoils from continuously grazed (CG) and ungrazed sites where grazing was excluded from 1979 onwards (UG79) were sampled for two steppe types in Inner Mongolia, northern China. All samples were analysed for basic soil properties and separated into free and aggregate-occluded light fractions (fLF, oLF) and mineral-associated fractions. Tensile strength of soil aggregates was measured by crushing tests. Undisturbed as well as artificially compacted samples, where aggregates were destroyed mechanically by compression, were incubated and the mineralization of SOC was measured. For undisturbed samples, the cumulative release of CO2-C was greater for CG compared with UG79 for both steppe types. A considerably greater amount of oLF was found in UG79 than in CG soils, but the stabilities of 10–20-mm aggregates were less for ungrazed sites. Compacted samples showed only a slightly larger carbon release with CG but a considerably enhanced mineralization with UG79. We assume that the continuous trampling of grazing animals together with a smaller input of organic matter leads to the formation of mechanically compacted stable ‘clods’, which do not provide an effective physical protection for SOC in the grazed plots. In UG79 sites, a greater input of organic matter acting as binding agents in combination with an exclusion of animal trampling enhances the formation of soil aggregates. Thus, grazing exclusion promotes the physical protection of SOC by increasing soil aggregation and is hence a management option to enhance the C sequestration potential of degraded steppe soils.