The impact of polymer-based slow-release urea formulations on soil microbial N dynamics in potatoes has been sparingly deciphered. The present study investigated the effect of a biodegradable nano-polymer urea formulation on soil enzymatic activities and microflora involved in the N cycling of potato (Solanum tuberosum L.). The nano-chitosan-urea composite (NCUC) treatment significantly increased the soil dehydrogenase activity, organic carbon content and available potassium compared to the conventional urea (CU) treatment. The soil ammonical nitrogen (NH4+-N) and nitrate nitrogen (NO3−-N) contents and urease activity were significantly decreased in the NCUC-amended soil. The slow urea hydrolysis rate led to low concentrations of NH4+-N and NO3−-N in the tested potato soil. Furthermore, these results corroborate the low count of ammonia oxidizer and nitrate reducer populations. Quantitative PCR (q-PCR) studies revealed that the relative abundance of eubacterial (AOB) and archaeal ammonia-oxidizing (AOA) populations was reduced in the NCUC-treated soil compared to CU. The abundance of AOA was particularly lower than AOB, probably due to the more neutral and alkaline conditions of the tested soil. Our results suggest that the biodegradable polymer urea composite had a significant effect on the microbiota associated with soil N dynamics. Therefore, the developed NCUC could be used as a slow N-release fertilizer for enhanced growth and crop yields of potato.