Arid and semiarid regions cover more than one‐third of the land surface, where the interplay between water, land use, and management strongly influences carbon (C) sequestration. Yet, information on the C management practices and how local biophysical conditions affect the C sequestration potential is limited. We explored the opportunities, research gaps, and future directions of land C sequestration in arid and semiarid regions, using New Mexico as an example. We also identified the major land use types and their potential for C storage and sequestration. Our results showed that innovations in cropland and rangeland management, protection of existing forests, and restoration of degraded forest lands after drought and wildfire enhanced C sequestration in arid and semiarid lands. Landscape‐scale C balance studies with fine‐scale mapping, improving water and nutrient use efficiency, and policy incentives to support farms will unlock the full potential of C sequestration in croplands, rangelands, and forest lands. Future research should focus on the response of land management practices to climate anomalies and their potential to sequester C and offset greenhouse gas emissions as a natural climate solution in arid and semiarid regions.