A high crop yield with the minimum possible cost to the environment is generally desirable.  However, the complicated relationships among crop production, nitrogen (N) use efficiency and environmental impacts must be clearly assessed.  We conducted a series of on-farm N application rate experiments to establish the linkage between crop yield and N₂O emissions in the Guanzhong Plain in Northwest China.  We also examined crop yield, partial factor productivity of applied N (PFPN) and reactive N (Nr) losses through a survey of 1 529 and 1 497 smallholder farms that grow wheat and maize, respectively, in the region.  The optimum N rates were 175 and 214 kg ha−1 for winter wheat and summer maize, respectively, thereby achieving the yields of 6 799 and 7 518 kg ha⁻¹, correspondingly, with low N₂O emissions based on on-farm N rate experiments.  Among the smallholder farms, the average N application rates were 215 and 294 kg ha⁻¹ season⁻¹, thus producing 6 490 and 6 220 kg ha⁻¹ of wheat and maize, respectively.  The corresponding PFPN values for the two crops were 36.8 and 21.2 kg N kg⁻¹, and the total N₂O emissions were 1.50 and 3.88 kg ha⁻¹, respectively.  High N balance, large Nr losses and elevated N₂O emissions could be explained by the overdoses of N application and low grain yields under the current farming practice.  The crop yields, N application rates, PFPN and total N2O for wheat and maize were 18 and 24% higher, 42 and 37% less, 75 and 116% higher, and 42 and 47% less, correspondingly, in the high-yield and high-PFPN group than in the average smallholder farms.  In conclusion, closing the PFPN gap between the current average and the value for the high-yield and high-PFPN group would increase crop production and reduce Nr losses or the total N₂O emissions for the investigated cropping system in Northwest China.