Carbon (C) storage and sequestration in agricultural soils is considered to be an important issue in the study of terrestrial C cycling and global climatic change. The baseline C stock and the C sequestration potential are among the criteria for a region or a state to adopt strategies or policies in response to commitment to the Kyoto Protocol. Paddy soils represent a large portion of global cropland. However, little information on the potential of C sequestration and storage is available for such soils. In this paper, an estimation of the topsoil soil organic carbon (SOC) pool and the sequestration potential of paddy soils in China was made by using the data from the 2nd State Soil Survey carried out during 1979–1982 and from the nationwide arable soil monitoring system established since then. Results showed that the SOC density ranged from 12 to 226 t C ha−1 with an area-weighted mean density of 44 t C ha−1, which is comparable to that of the US grasslands and is higher than that of the cultivated dryland soils in China and the US. The estimated total topsoil SOC pool is 1.3 Pg, with 0.85 Pg from the upper plow layer and 0.45 Pg from the plowpan layer. This pool size is ∼2% of China's total storage in the top 1 m of the soil profiles and ∼4% of the total topsoil pool, while the area percentage of paddy soil is 3.4% of the total land. The C pool in paddy soils was found predominantly in southeast China geographically and in the subgroups of Fe-accumulating and Fe-leaching paddy soils pedogenetically. In comparison with dryland cultivation, irrigation-based rice cultivation in China has induced significant enrichment of SOC storage (0.3 Pg) in paddy soils. The induced total C sequestration equals half of China's total annual CO2 emission in the 1990s. Estimates using different SOC sequestration scenarios show that the paddy soils of China have an easily attainable SOC sequestration potential of 0.7 Pg under present conditions and may ultimately sequester 3.0 Pg. Soil monitoring data showed that the current C sequestration rate is 12 Tg yr−1. The total C sequestration potential and the current sequestration rate of the paddy soils are over 30%, while the area of the paddy soils is 26% that of China's total croplands. Therefore, practicing sustainable agriculture is urgently needed for enhancing SOC storage to realize the ultimate SOC sequestration of rice-based agriculture of China, as the current C sequestration rate is significantly lower than the potential rate.