The adoption of cereal cultivation was one of the most important cultural processes in history, marking the transition from hunting and gathering by Mesolithic foragers to the food-producing economy of Neolithic farmers. In the Lower Yangtze region of China, a centre of rice domestication, the timing and system of initial rice cultivation remain unclear. Here we report detailed evidence from Kuahuqiao that reveals the precise cultural and environmental context of rice cultivation at this earliest known Neolithic site in eastern China, 7,700 calibrated years before present (cal. yr BP). Pollen, algal, fungal spore and micro-charcoal data from sediments demonstrate that these Neolithic communities selected lowland swamps for their rice cultivation and settlement, using fire to clear alder-dominated wetland scrub and prepare the site for occupation, then to maintain wet grassland vegetation of paddy type. Regular flooding by slightly brackish water was probably controlled by `bunding' to maintain crop yields. The site's exploitation ceased when it was overwhelmed by marine inundation 7,550 cal. yr BP. Our results establish that rice cultivation began in coastal wetlands of eastern China, an ecosystem vulnerable to coastal change but of high fertility and productivity, attractions maximized for about two centuries by sustained high levels of cultural management of the environment.