Soil erosion is a major form of land degradation that threatens agricultural productivity and rural livelihoods, particularly in developing countries such as Ethiopia. Anionic polyacrylamide (PAM) has been shown to reduce soil erosion and improve soil quality; however, its rate-dependent effects in clay-dominated soils and associated biological responses remain poorly understood. This study evaluated the effects of different PAM application rates on runoff, soil loss, soil properties, microbial communities, and crop performance through complementary field and glasshouse experiments. A field experiment was conducted during the 2023 rainy season in the Debre Mewi watershed, northwest Ethiopia, using a randomized complete block design with three replications and five PAM rates (0, 40, 80, 120, and 160 kg ha⁻¹). In parallel, a glasshouse experiment was established using soil from the same site, testing three PAM rates (0, 40, and 160 kg ha⁻¹) under planted and unplanted conditions. A total of 39 runoff and sediment events were monitored in field experiment. Soil physicochemical and biological properties were analyzed using standard methods, and microbial community composition was assessed using next-generation sequencing. Compared with the control, PAM application significantly reduced runoff by 22% and soil loss by 68%. Both field and glasshouse results showed improvements in soil pH, organic carbon, total nitrogen, available phosphorus, and exchangeable calcium with increasing PAM rates. In the glasshouse experiment, PAM enhanced soil aggregate stability by up to 46% and increased soil moisture retention. While overall microbial community composition showed limited changes, PAM application increased selected soil enzymatic activities and nitrate nitrogen (NO₃⁻-N) availability. PAM significantly improved teff grain yield by 44% in the field and increased plant biomass by 153% at the highest application rate in the glasshouse. Overall, PAM application effectively reduced soil erosion and improved soil physical, chemical, and biological functioning in clay-dominated dryland soils. These findings highlight the potential of PAM as a sustainable land management practice for erosion control and productivity enhancement, while underscoring the need for further research on its long-term impacts on soil microbial dynamics.