Peatlands are a critical carbon store comprising 30% of the Earth’s terrestrial soil carbon. Sphagnum mosses comprise up to 90% of peat in the northern hemisphere but impacts of climate change on Sphagnum mosses are poorly understood, limiting development of sustainable peatland management and restoration. This study investigates the effects of elevated atmospheric CO2 (eCO2) (800 ppm) and hydrology on the growth of Sphagnum fallax, Sphagnum capillifolium and Sphagnum papillosum and greenhouse gas fluxes from moss–peat mesocosms. Elevated CO2 levels increased Sphagnum height and dry weight but the magnitude of the response differed among species. The most responsive species, S. fallax, yielded the most biomass compared to S. papillosum and S. capillifolium. Water levels and the CO2 treatment were found to interact, with the highest water level (1 cm below the surface) seeing the largest increase in dry weight under eCO2 compared to ambient (400 ppm) concentrations. Initially, CO2 flux rates were similar between CO2 treatments. After week 9 there was a consistent three-fold increase of the CO2 sink strength under eCO2. At the end of the experiment, S. papillosum and S. fallax were greater sinks of CO2 than S. capillifolium and the − 7 cm water level treatment showed the strongest CO2 sink strength. The mesocosms were net sources of CH4 but the source strength varied with species, specifically S. fallax produced more CH4 than S. papillosum and S. capillifolium. Our findings demonstrate the importance of species selection on the outcomes of peatland restoration with regards to Sphagnum’s growth and GHG exchange.