Drylands play a crucial role in global soil carbon (C) sequestration, with soil C dynamics jointly determined by soil organic C (SOC) and inorganic C (SIC). In addition to aridity's control, soil C dynamics in drylands are also influenced by human activities, such as terrace construction, thereby augmenting the uncertainty in assessing and predicting soil C sequestration functions. Terraces converted from sloping farmland are an important agricultural land use type, but there has been limited research on the effects of terracing on SOC, SIC, and soil total C (STC) under varying aridity. Here, we selected four representative terracing sites on the Chinese Loess Plateau, two in regions with lower aridity and the other two in regions with higher aridity. SOC, SIC, and STC contents along with influencing variables were analyzed to investigate how terracing affects soil C dynamics under different aridity conditions. Results showed that both SOC and SIC contents synergistically increased following sloping farmland conversion to terraces under lower aridity conditions, thus contributing to an elevation in STC content. However, terracing increased SOC content yet reduced SIC content under higher aridity conditions, and SOC-SIC trade-offs caused fluctuation or even loss in STC content. Consequently, soil C dynamics in terraces exhibited divergent responses to shifts in aridity, and this effect intensified with the terraced age (p < 0.05). Moreover, soil pH emerged as the primary driver of C dynamics in terraced soils under different aridity conditions, with SOC and STC declining and SIC increasing significantly as pH increased (p < 0.05). In addition, mineral protection enhanced SOC accrual under lower aridity conditions, as evidenced by a significant positive correlation between SOC and clay contents (p < 0.001). SOC and SIC contents responded positively (p = 0.001) and negatively (p < 0.001) to soil moisture variations under higher aridity conditions, respectively. In conclusion, these findings highlight the importance of simultaneously considering changes in both SOC and SIC when predicting and enhancing the C sequestration capacity of terraced soils in drylands, thus contributing to mitigating global climate change.