Increasing carbon (C) sequestration and stability in agricultural soils is a key strategy to mitigate climate change towards C neutrality. Crop diversification is an initiative to increase C sequestration in fields, but it is unclear how legume-based crop diversification impacts the functional components of soil organic carbon (SOC) in dryland, including the formation and transformation of particulate organic carbon (POC) and mineral-associated organic carbon (MAOC). We investigated the decomposition of straw residues, the fate of photosynthesized C, as well as the formation of MAOC and POC fractions using an in situ13C labeling technique in the soybean-wheat intercropping, soybean-maize intercropping and their respective monocropping systems, with and without cover crops. After 4-year treatments, the total SOC content in bulk soil remained unchanged, while MAOC content increased significantly by 5.6% with intercropping. Moreover, the in situ13C labeling results confirmed that more photosynthesized C was transferred to MAOC, and less was retained in the POC fraction. Intercropping significantly increased total soil N and mineral N content by 15.3% and 13.4%, respectively, and decreased soil and microbial C/N ratio by 11.3% and 17.4%, respectively. This outcome, therefore, relieved microbial N limitation and accelerated straw residue decomposition. Accordingly, the potential of MAOC formation was strengthened for better SOC persistence. Our study suggests that legume-based crop diversification can effectively enrich N and support POC transformation to MAOC, accordingly contributing to the persistent SOC pool and thus potentially achieving C neutrality under climate change in dryland agroecosystems.