Soil carbon sequestration (enhanced sinks) is the mechanism responsible for most of the greenhouse gas (GHG) mitigation potential in the agriculture sector. Carbon sequestration in grasslands can be determined directly by measuring changes in soil organic carbon (SOC) stocks and indirectly by measuring the net balance of C fluxes. A literature search shows that grassland C sequestration reaches on average 5 ± 30 g C/m2 per year according to inventories of SOC stocks and −231 and 77 g C/m2 per year for drained organic and mineral soils, respectively, according to C flux balance. Off-site C sequestration occurs whenever more manure C is produced by than returned to a grassland plot. The sum of on- and off-site C sequestration reaches 129, 98 and 71 g C/m2 per year for grazed, cut and mixed European grasslands on mineral soils, respectively, however with high uncertainty. A range of management practices reduce C losses and increase C sequestration: (i) avoiding soil tillage and the conversion of grasslands to arable use, (ii) moderately intensifying nutrient-poor permanent grasslands, (iii) using light grazing instead of heavy grazing, (iv) increasing the duration of grass leys; (v) converting grass leys to grass-legume mixtures or to permanent grasslands. With nine European sites, direct emissions of N2O from soil and of CH4 from enteric fermentation at grazing, expressed in CO2 equivalents, compensated 10% and 34% of the on-site grassland C sequestration, respectively. Digestion inside the barn of the harvested herbage leads to further emissions of CH4 and N2O by the production systems, which were estimated at 130 g CO2 equivalents/m2 per year. The net balance of on- and off-site C sequestration, CH4 and N2O emissions reached 38 g CO2 equivalents/m2 per year, indicating a non-significant net sink activity. This net balance was, however, negative for intensively managed cut sites indicating a source to the atmosphere. In conclusion, this review confirms that grassland C sequestration has a strong potential to partly mitigate the GHG balance of ruminant production systems. However, as soil C sequestration is both reversible and vulnerable to disturbance, biodiversity loss and climate change, CH4 and N2O emissions from the livestock sector need to be reduced and current SOC stocks preserved.