Northwestern Canada is currently warming nearly four times faster than the global average, driving accelerated permafrost thaw and changes to ecosystem vegetation, hydrology and landscape structure across the landscape. While permafrost peatlands constitute a large carbon reservoir, there is no consensus yet on the direction and magnitude of changes to their vulnerable carbon balance. Here, we assessed changes in peatland ecosystems following permafrost thaw at three sites located along a 1000 km long climate and permafrost gradient along the Mackenzie River valley, Canada. Specifically, we examined vegetation succession over the last few decades to evaluate the possible impact of climate warming on peat and carbon accumulation. Results from the palaeoecological analysis of 20 surficial peat cores, supported by robust chronologies, show a return to Sphagnum accumulation since ca. 1980 CE in the sporadic and discontinuous permafrost zones and ca. 2000 CE in the continuous permafrost zone. The average rates of peat and carbon accumulation reached 4 mm yr−1 and 134 g C m−2 yr−1 at the northernmost site in the continuous permafrost zone. In contrast, peat and carbon accumulation reached 3 mm yr−1 and 81 g C m−2 yr−1, respectively, in the sporadic and discontinuous permafrost zones. This study highlights the need for a net carbon budget that integrates the recent accelerated Sphagnum growth and carbon uptake from the atmosphere to better assess the potential carbon emissions offset following permafrost thaw. High-resolution palaeoecological studies can offer insights into decadal-scale patterns of vegetation and carbon balance changes to improve model predictions of peat climate-carbon cycle feedbacks.