Substituting chemical fertilizers with organic alternatives represents an effective strategy for mitigating soil nitrogen (N) loss and reducing chemical fertilizer use. However, the efficacy of organic substitution in regulating soil N fertility and rice growth requires further investigation, and mechanistic studies elucidating how organic fertilizers affect soil N transformation processes and availability are still deficient. To address this, we conducted a three-year field experiment from 2021 to 2023, comparing three rice fertilization regimes: (1) chemical fertilizer as the control (CK), (2) substitution with organic fertilizer (OF), and (3) substitution with biochar-based organic fertilizer (BF). Both organic substitution treatments were applied as basal fertilizer, and the rice plants received equivalent topdressing applications. The soil N availability, gross and net N transformation rates, and soil microbial activity were analyzed, and the rice growth index and yield were determined. The results showed that organic substitution (OF and BF) significantly increased the soil total carbon content, stimulated microbial biomass growth and enhanced enzymatic activity associated with soil C and N cycling. However, the limited N input from organic substitution significantly decreased the soil gross N mineralization rate by 28.30% (OF) and 58.14% (BF), compared to chemical fertilization (CK). It also reduced the gross N nitrification rate by 38.30% (OF) and 36.17% (BF). These suppressed N transformation processes ultimately led to 11.97% (OF) and 14.72% (BF) lower soil mineral N contents. The soil N deficiency during critical early vegetative growth stages substantially constrained rice development, resulting in significant yield reductions in the OF and BF treatments compared to chemical fertilization (CK). These results indicate that complete organic substitution compromises rice yields due to insufficient N availability; therefore, we recommend integrated organic–mineral fertilization as an optimal strategy to achieve both crop productivity and environmental benefits.