Pasture and afforestation are land-use types of major importance in the tropics, yet, most flux tower studies have been conducted in mature tropical forests. As deforestation in the tropics is expected to continue, it is critical to improve our understanding of alternative land-use types, and the impact of interactions between land use and climate on ecosystem carbon dynamics. Thus, we measured net ecosystem CO2 fluxes of a pasture and an adjacent tropical afforestation (native tree species plantation) in Sardinilla, Panama from 2007 to 2009. The objectives of our paired site study were: (1) to assess seasonal and inter-annual variations in net ecosystem CO2 exchange (NEE) of pasture and afforestation, (2) to identify the environmental controls of net ecosystem CO2 fluxes, and (3) to constrain eddy covariance derived total ecosystem respiration (TER) with chamber-based soil respiration (R Soil) measurements. We observed distinct seasonal variations in NEE that were more pronounced in the pasture compared to the afforestation, reflecting changes in plant and microbial activities. The land conversion from pasture to afforestation increased the potential for carbon uptake by trees vs. grasses throughout most of the year. R Soil contributed about 50% to TER, with only small differences between ecosystems or seasons. Radiation and soil moisture were the main environmental controls of CO2 fluxes while temperature had no effect on NEE. The pasture ecosystem was more strongly affected by soil water limitations during the dry season, probably due to the shallower root system of grasses compared to trees. Thus, it seems likely that predicted increases in precipitation variability will impact seasonal variations of CO2 fluxes in Central Panama, in particular of pasture ecosystems.