Although the trajectory of the marine mass extinction at the ∼252-Ma Permian-Triassic (P-Tr) boundary has been well studied, details of the coeval collapse of terrestrial ecosystems remain murky. Here, we use hydrocarbon biomarker compositions and other geological records (i.e., organic carbon isotopes (δ13Corg), charcoal abundance, and Hg content) from a tropical peatland succession in southwestern China to reconstruct in detail the history of terrestrial ecosystem collapse during the P-Tr crisis. Our high-resolution hydrocarbon biomarker records reveal that this collapse proceeded in a stepwise manner with increasing intensity as the crisis unfolded. We recognize three discrete crisis stages: Stage I within the uppermost Xuanwei Formation and Stages II and III within the lowermost Kayitou Formation. Stage I, the early crisis stage, is marked by a significant decline in terrestrial biomass (continuing into the later stages), as recorded by reduced C29 steranes relative to total steranes and a concomitant reduction in the ratio of pristane to phytane (Pr/Ph). Stage II, the main crisis stage, records intensified soil erosion and sediment flux as revealed by rising dibenzofuran (DBF) content and high hopane/sterane ratios, the disappearance of coal seams, a sharp negative shift in δ13Corg, and peak concentrations of charcoal reflecting increased wildfire incidence. Stage III, the late crisis stage characterized by enhanced soil erosion, corresponds to peak values of Hg and Hg/TOC but no charcoal peak, suggesting intensified volcanism and a return to a humid climate. These stages closely follow temperature records, which show a stepwise rise during the crisis interval, implying that the deforestation process was strongly influenced by punctuated rises in temperature and/or its attendant effects (e.g., climate aridification). This P-Tr transition scenario suggests that global warming can trigger deforestation and reduce terrestrial carbon storage, thus serving as a positive climate feedback, with important implications for present-day climate change.