Crop residues (stubble) are one of the major sources of C for soil biota in Australian cotton soils and stubble retention can provide benefits through changes in soil physical, chemical and biological properties. Biological functions in soils are a product of the diversity of microbial populations and their activity as limited by environmental and soil constraints. The rate of stubble decomposition during the initial periods (six months) is known to vary with climate (temp and moisture), litter chemistry and composition of soil microbiota. We determined the effect of crop variety and management practice such as herbicide application on the rate of cotton stubble decomposition and microbial activity and composition of bacteria and fungi associated with decomposing stubble and leaf residues. Litter bag and in situ soil core experiments were conducted over three years in field plots on a self mulching Vertosol at Narrabri, New South Wales, Australia. Samples of cotton residues (stubble or leaves) and soil attached to the residues were analysed fungal community structure by Community-Level Physiological Profiling (CLPP) and the diversity of bacteria and fungi using 16S rDNA / 18S rDNA – DGGE methods. Microbial activity levels associated with decomposing residues were measured using a short-term lab incubation assay. Decomposition of cotton stubble over a 15 week period ranged between 40 to 62% and the effects of herbicide application were variable i.e. some herbicides such as Prometryn, Pendimethalin and Fluometuron reduced decomposition where as others (Diuron) had no effect. Microbial activity levels associated with herbicide treated stubble lower where as fungal populations were higher when compared with no herbicide control. Microbial community structure near decomposing stubble and leaf samples differed with cotton varieties, in particular the community level physiological profiling and diversity of fungi although the C and N concentrations were not different.