There is concern that transgenic Bt-crops carry genes that could have undesirable effects on natural and agro-ecosystem functions. We investigated the effect of Bt-cotton (expressing the Cry 1Ac protein) on several microbial and biochemical indicators in a sandy loam soil. Bt-cotton (MRC-6301Bt) and its non-transgenic near-isoline (MRC-6301) were grown in a net-house on a sandy clay loam soil. Soil and root samples were collected 60, 90, and 120 days after sowing. Soil from a control (no-crop) treatment was also included. Samples were analysed for microbial biomass C, N and P (MBC, MBN, MBP), total organic carbon (TOC), and several soil enzyme activities. The microbial quotient (MQ) was calculated as the ratio of MBC-to-TOC. The average of the three sampling events revealed a significant increase in MBC, MBN, MBP and MQ in the soil under Bt-cotton over the non-Bt isoline. The TOC was similar in Bt and non-Bt systems. Potential N mineralization, nitrification, nitrate reductase, and acid and alkaline phosphatase activities were all higher in the soil under Bt-cotton. Root dry weights were not different (P > 0.05), but root volume of Bt-cotton was higher on 90 and 120 days than that of non-Bt cotton. The time of sampling strongly affected the above parameters, with most being highest on 90 days after sowing. We concluded from the data that there were some positive or no negative effects of Bt-cotton on the studied indicators, and therefore cultivation of Bt-cotton appears to be no risk to soil ecosystem functions.