Drylands have been significantly affected by degradation processes, severely compromising soil health (SH) and ecosystem functionality. This study evaluated the potential of carbon-related processes as indicators of SH across a degradation-restoration gradient in the Caatinga biome, in northeastern Brazil. Over two consecutive years, we analyzed physical, chemical, and biological soil attributes in areas of native vegetation, degradation (overgrazing), and restoration (21 years of grazing exclusion). We quantified soil organic carbon (SOC) (total content and stocks), microbial biomass carbon, soil respiration, and related indices, including the metabolic quotient (qCO2) and microbial carbon use efficiency (qMic-C). In addition, we assessed (3-glucosidase activity and glomalin content. These data were integrated with measurements of bulk density, aggregate stability, and SH indices. Restoration significantly improved soil organic carbon (SOC) stocks (up to 115 % higher than degraded soils), microbial biomass carbon (65 % higher), and (3-glucosidase activity (70 % higher), while reducing bulk density by 18 %. The Soil Health Index increased from 0.39 in degraded areas to 0.71 under restoration, approaching values observed in native vegetation (0.78). Structural equation modeling showed that sustainable soil management, rather than time alone, was the primary driver of SH recovery. Our findings highlight that carbonrelated processes strongly enhance microbial and chemical properties, reinforcing their inclusion in minimum datasets for SH assessment. Long-term grazing exclusion proved effective for restoring soil multifunctionality and resilience in semiarid ecosystems.