Southeast Asia has the highest rate of tropical rainforest deforestation worldwide, and large deforested areas have been replaced ultimately by the highly invasive grass Imperata cylindrica. However, information on the carbon (C) budget with such land transition is very scarce. This study presents the dynamics of soil C following rainforest destruction and the subsequent establishment of Imperata grassland in the lowland humid tropics of Indonesian Borneo using stable C isotopes. To evaluate the relative contribution of organic matter originating from primary forest (C3) and grasslands (C4), we compared soil C stock and natural 13C abundance from six sites to a depth of 100 cm using samples with a wide range of soil textures. Twelve years after the first soil sampling in the grasslands, we re-sampled to examine temporal changes in soil organic matter. The grassland topsoil (0–5 cm) is an active layer with rapid decomposition and incorporation of fresh C (mean residence time: 7.5 year) and a substantial proportion of the stable C pool (37%). The decline in forest-derived C was slight, even at 5–10 cm depths, and subsoil (20–100 cm depth) forest-derived C did not change along the forest-to-grassland chronosequence. Grassland-derived C stock increased significantly in the subsurface and subsoils (5–100 cm). Simulation indicated that total soil C stock (0–100 cm) increased by 18.6 Mg ha−1 from initial primary forest (58.0 Mg ha−1) to a new equilibrium state of the grassland (76.6 Mg ha−1) after 30–50 years of grassland establishment. This research indicates that the soil did not function as a CO2 source when the deforested area was replaced by Imperata grassland on the Ultisols of the Asian humid tropics. Instead, increased soil C stocks offset CO2 emissions, with the C offset accounting for 6.6–7.4% of the loss of biomass C stock.