Abstract Laboratory incubation experiments were conducted to evaluate the ability of the urease inhibitor phenylphosphorodiamidate (PPD) to reduce NH 3 volatilization and immobilization of urea (100 mg N kg −1 of soil). Application of 20 mg PPD kg −1 of soil effectively inhibited urea hydrolysis for approximately 4 d in both soil and oat straw‐amended soil systems. This delayed urea hydrolysis reduced NH 3 losses after 7 d from 82 to 19% in the straw‐amended soil, and from 26 to 14% in the soil system. When urea was applied to soil incubated in closed vessels, only 80% of the applied urea could be recovered as inorganic N after 3 d of incubation. This apparent immobilization of N was prevented for 7 d by application of PPD. Immobilization of N in the straw‐amended soil exceeded 40% within 7 d, but the onset of these losses was delayed for at least 3 d by PPD. These results demonstrate that losses of surface‐applied urea via both NH 3 volatilization and immobilization can be prevented by application of an effective urease inhibitor.