Surface space constraints and the associated massive carbon emissions present significant challenges to the sustainable development of megacities. Urban underground space (UUS) construction is expected to provide a practical approach for alleviating the space constraints of surface construction. However, in-depth examinations of the overall UUS system to reveal carbon emissions in the complex matrix are lacking. This study demonstrates the vital role of UUS development in achieving carbon neutrality using a streamlined life-cycle assessment method. Carbon emissions and the mitigation potential of building underground spaces, metro systems, and geothermal energy sources are analyzed. The construction of underground spaces in buildings is the largest carbon emitter within the entire UUS system, releasing a considerable 547.2 Mt in 2020. However, geothermal carbon sequestration, a significant element of the UUS system, provided an unexpected and impressive contribution, sequestering 170 Mt of carbon in 2020. This study shows that UUS addresses the lack of space for urban development and is a low-carbon method of urban construction. Therefore, developing low-carbon building technologies and improving the UUS development model is imperative to achieving better low-carbon balance. This helps to promote more coordinated and sustainable urban development.