AbstractPermafrost peatlands are biogeochemical hot spots in the Arctic as they store vast amounts of carbon. Permafrost thaw could release part of these long‐term immobile carbon stocks as the greenhouse gases (GHGs) carbon dioxide (CO2) and methane (CH4) to the atmosphere, but how much, at which time‐span and as which gaseous carbon species is still highly uncertain. Here we assess the effect of permafrost thaw on GHG dynamics under different moisture and vegetation scenarios in a permafrost peatland. A novel experimental approach using intact plant–soil systems (mesocosms) allowed us to simulate permafrost thaw under near‐natural conditions. We monitored GHG flux dynamics via high‐resolution flow‐through gas measurements, combined with detailed monitoring of soil GHG concentration dynamics, yielding insights into GHG production and consumption potential of individual soil layers. Thawing the upper 10–15 cm of permafrost under dry conditions increased CO2 emissions to the atmosphere (without vegetation: 0.74 ± 0.49 vs. 0.84 ± 0.60 g CO2–C m−2 day−1; with vegetation: 1.20 ± 0.50 vs. 1.32 ± 0.60 g CO2–C m−2 day−1, mean ± SD, pre‐ and post‐thaw, respectively). Radiocarbon dating (14C) of respired CO2, supported by an independent curve‐fitting approach, showed a clear contribution (9%–27%) of old carbon to this enhanced post‐thaw CO2 flux. Elevated concentrations of CO2, CH4, and dissolved organic carbon at depth indicated not just pulse emissions during the thawing process, but sustained decomposition and GHG production from thawed permafrost. Oxidation of CH4 in the peat column, however, prevented CH4 release to the atmosphere. Importantly, we show here that, under dry conditions, peatlands strengthen the permafrost–carbon feedback by adding to the atmospheric CO2 burden post‐thaw. However, as long as the water table remains low, our results reveal a strong CH4 sink capacity in these types of Arctic ecosystems pre‐ and post‐thaw, with the potential to compensate part of the permafrost CO2 losses over longer timescales.