The contribution of cotton stubble to the soil organic matter content of Vertisols under cotton production is not well understood. A 3-year experiment was conducted at the Australian Cotton Research Institute to study the effects of burning and incorporating cotton stubble on the recovery of fertiliser nitrogen (N), lint yield, and organic matter levels. This study reports on the changes in soil organic matter fractions as affected by burning and incorporating cotton stubble into the soil. Soil samples collected at the start and end of the 3-year experiment were analysed for total carbon (C-T), total N (N-T), and delta(13)C (a measure of C-13/C-12 isotopic ratios). Labile carbon (C-L) was determined by ease of oxidation and non-labile carbon (C-NL) was calculated as the difference between C-T and C-L. Based on the changes in C-T, C-L, and C-NL, a carbon management index (CMI) was calculated. Further analyses were made for total polysaccharides (P-T), labile polysaccharides (P-L), and light fraction C (LF-C). Stubble management did not significantly affect the N-T content of the soil. After 3 years, the stubble-incorporated plots had a significantly higher content of C-T, C-L, and polysaccharides. Incorporation of stubble into the soil increased the CMI by 41%, whereas burning decreased the CMI by 6%. The amount of LF-C obtained after 3 years in the stubble-incorporated soil was almost double that obtained in the stubble-burnt soil. It was concluded that for sustainable management of soil organic matter in the Vertisols used for cotton production, stubble produced in the system should be incorporated instead of burnt.