Permafrost thaw, especially thermokarst formation, that is, ground collapse due to thawing of ice‐rich permafrost, is expected to alter soil gross nitrogen (N) transformations, which can regulate plant productivity and ecosystem carbon cycle. However, it remains unclear how thermokarst formation modifies soil N processes in permafrost ecosystems. Here ¹⁵N pool dilution techniques were used to evaluate changes in topsoil gross N transformations during various thaw stages (early, middle, and late stages) along a thermo‐erosion gully on the Tibetan Plateau. Structural equation modeling was then conducted to explore the relative importance of biotic and abiotic factors in affecting soil gross N transformations. The results showed that topsoil gross N mineralization (GNM) decreased at the three stages, reflecting declined inorganic N production after permafrost collapse. In contrast, topsoil gross nitrification increased only during the early stage. Additionally, the ratio of microbial N immobilization to GNM was enhanced during the middle and late stages, indicating a stronger microbial N limitation after thermokarst formation. The structural equation modeling analysis revealed that soil moisture played an important role in modulating gross N transformations. For GNM, decreased soil moisture had inhibiting effects via regulating the microbial biomass, microbial community, and enzyme activities along the thaw sequence. For gross nitrification, declined soil moisture exerted facilitating effects directly by improving oxygen availability and indirectly by modulating the abundances of ammonia‐oxidizing archaea and bacteria during the early stage. Overall, these results demonstrated that thermokarst formation altered soil N processes, potentially triggering interactions between ecosystem N and carbon cycles after permafrost thaw.