The use of farm dairy effluents (FDE) has become a promising alternative to increase pasture yield while reducing the environmental impact of waste accumulation into streams, but other environmental implications should be considered. The present study aimed to assess the effect of application of either raw FDE or lagoon-stored FDE compared to dissolved urea or a non-amended control on N2O emission, soil N dynamics, functional microbial activity, and the yield and N-use efficiency of a fescue pasture. The normalized N application rate of 200 kg N ha−1 was divided into four seasonal events in a greenhouse experiment. Similar fescue forage production with FDE or urea positioned FDE application to soil as an alternative disposal. The repeated application of raw effluent delivered more organic C to the soil which induced an increase in enzyme activities, a shift in the catabolic activity of the soil microbial community, and greater N mineralization potential. On the other hand, urea addition decreased the functional activity of the soil microbial community. However, N2O emissions were greater for the raw effluent, so lagoon-stored effluent is an alternative to manage FDE under these conditions, avoiding urea addition and enhancing soil metabolic activity.