In tropical dairy production systems, where high rates of urea fertiliser are applied, little is known about nitrogen (N) fertiliser response, fertiliser-use efficiency and losses to the environment. This study aimed to determine the effects of N fertiliser (urea) application rate and a nitrification inhibitor (3, 4-dimethylpyrazole phosphate, DMPP) on pasture yield and N losses in a dairy production system in North Queensland, Australia. The experiment was a factorial design with two fertiliser rates (industry standard per application 57 kg N ha^–1 or half that, applied ~3-weekly), two DMPP rates (0 or 4.86 g kg^–1 urea) and four replicates, completed over 1 year. Urea applied at half the industry standard rate, together with DMPP, provided annual dry matter pasture yields (11 462 kg ha^–1) not significantly different from those when urea was applied at the higher rate, with or without DMPP (10 691 and 11 156 kg ha^–1, respectively). The low rate of urea without DMPP had the lowest annual dry matter yield (8386 kg ha^–1). Most of the fertiliser N lost from the system appeared to be via leaching, with loss in surface runoff minimal. During the ryegrass phase, an experiment with ¹⁵N labelling showed that, 3 months after application, 27–39% of the applied N had been taken up by the pasture, 23–45% was recovered in the soil, and 18–40% had been lost. Emission of N₂O peaked within a day of fertiliser application, and DMPP did not reduce emissions during that period. The findings indicate good potential for farmers to use DMPP-treated urea as a means of reducing N fertiliser rates without loss of productivity and with less loss of N to the environment.