A better understanding of the fate and transport of fertilizer nitrogen (N) is critical to maximize crop yields and minimize negative environmental impacts. Plastic film mulching is widely used in drylands to increase soil water use efficiency and crop yields, but the effects on fertilizer N use efficiency need to be evaluated. A field experiment with 15N-urea (260 kg N ha−1) was conducted to determine the fate and transport of fertilizer N in a ridge-furrow system with plastic film mulched ridge (Plastic), compared with a flat system without mulching (Open). In the Plastic, the 15N-urea was applied to the ridge only (Plastic-Ridge), or to the furrow only (Plastic-Furrow). Maize grain yield and net economic benefit for Plastic were significantly higher (by 9.7 and 8.5%, respectively) than those for Open. Total plant 15N uptake was 72.5% greater in Plastic compared with Open, and 15N was allocated mostly to the grain. Losses of the applied urea-N were 54.5% lower in Plastic and much more residual 15N was recovered in 0–120 cm soil compared with Open (42.7 and 26.8% of applied 15N, respectively). Lateral N movements from furrow to ridge and from ridge to furrow were observed and attributed to lateral movement of soil water due to microtopography of ridges and furrows and uneven soil water and heat conditions under mulching and plant water uptake. The ridges were the main N fertilizer source for plant uptake (96.5 and 3.5% of total N uptake in Plastic from ridge and furrow, respectively) and the furrow was the main source of N losses (78.6 and 21.4% of total N losses in Plastic from furrow and ridge, respectively). Gas emissions, especially ammonia volatilization was probably the main N loss in furrow. Thus, appropriately localized N application – into the ridges, and management strategies should be designed for Plastic to maximize N use efficiency by crops, decrease N gas losses and maintain sustainable agricultural systems in drylands. © 2018 The Authors