<p>The return of straw to agroecosystems can promote the turnover, production, and sequestration of soil organic C (SOC). To elucidate the mechanisms by which straw-derived dissolved organic matter (DOM) regulates SOС sequestration and stability, hydrophilic (Hi-DOM) and hydrophobic (Ho-DOM) fractions, derived in a laboratory setting, were separated from cotton stalks and independently incorporated into sandy loam soils subjected to continuous straw return for 5 (Straw-5y) and 15 years (Straw-15y). Compared with the control and Hi-DOM treatments, Ho-DOM increased SOC content by 119–150% in both soils. Hi-DOM reduced the proportion of total lignin phenols, particularly syringyl units in the Straw-15y soil, whereas Ho-DOM demonstrated a stronger capacity to accumulate total lignin phenols, especially vanillyl units, than Hi-DOM in both soils. This indicated that the characteristics of straw-derived DOM and soil physicochemical properties are important factors regulating the preservation of plant-derived C in soil. Moreover, Ho-DOM promoted the accumulation of fungal necromass C more effectively than Hi-DOM, suggesting that Ho-DOM is more conductive to the formation and retention of fungal necromass. The contribution of Ho-DOM to enhancing recalcitrant SOC fractions, including alkyl C and aromatic-C, exceeded that of Hi-DOM, derived in a superior alkyl C/O-alkyl-C ratio and greater hydrophobicity. Overall, straw-derived DOM enhanced both plant- and microbial-derived C pools, facilitating the transformation of straw-derived DOM into microbial necromass in sandy loam soils of the arid zone of Northwest China under long-term straw return. Ho-DOM was more effective than Hi-DOM in promoting SOC sequestration and stability through increased lignin accumulation and fungal necromass formation.</p>