Mangrove forests are valuable for coastal carbon processing and storage. Mangrove trees are recognised as important for carbon capture and storage, but the role of microalgae on the sediment surface (microphytobenthos) within mangrove forests is uncertain. We quantified transformation and loss pathways for microphytobenthos carbon by tracing the fate of 13C applied to 263m2 of mangrove forest sediment. After the first tidal inundation, <5% of the 13C was lost on the ebbing tide, pointing to rapid carbon assimilation by microphytobenthos (within hours). Of the added 13C, 44% remained in sediment organic carbon after the first tide, and 9% was within small crabs after 12 hours. Over 14 days, most carbon was lost as dissolved inorganic carbon in surface water (9% of added 13C) and groundwater (9%). Additional carbon was lost as dissolved organic carbon in surface water (1%) and groundwater (1%), particulate organic carbon (<1%), and via fluxes to the atmosphere (10% as CO2). However, assimilated carbon was strongly retained; 26% of the added 13C (i.e., 60% of assimilated 13C) remained in sediment organic carbon after 14 days, and some 13C was evident after two years. This highlights the potential for microphytobenthos to contribute to mangrove forest carbon retention.