Permafrost in peatlands of subarctic Sweden is presently thawing at accelerated rates, which raises questions about the destiny of stored carbon and nutrients and impacts on adjacent freshwater ecosystems. In this study we use peat and lake sediment records from the Stordalen palsa mire in northern Sweden to address the late Holocene (5,000 cal BP-present) development of the mire as well as related changes in carbon and nutrient cycling. Formation, sediment accumulation and biogeochemistry of two studied lakes are suggested to be largely controlled by the development of the mire and its permafrost dynamics. Peat inception took place at ca. 4,700 cal BP as a result of terrestrialisation. Onset of organic sedimentation in the adjacent lakes occurred at ca. 3,400 and 2,650 cal BP in response to mire expansion and permafrost aggradation, respectively. Mire erosion, possibly due to permafrost decay, led to re-deposition of peat into one of the lakes after ca. 2,100 cal BP, and stimulated primary productivity in the other lake at ca. 1,900–1,800 cal BP. Carbonate precipitation appears to have been suppressed when acidic poor fen and bog (palsa) communities dominated the catchment mire, and permafrost-induced changes in hydrology may further have affected the inflow of alkaline water from the catchment. Elevated contents of biogenic silica and diatom pigments in lake sediments during periods of poor fen and bog expansion further indicate that terrestrial vegetation influenced the amount of nutrients entering the lake. Increased productivity in the lake likely caused bottom-water anoxia in the downstream lake and led to recycling of sediment phosphorous, bringing the lake into a state of self-sustained eutrophication during two centuries preceding the onset of twentieth century permafrost thaw. Our results give insight into nutrient and permafrost dynamics in a subarctic wetland and imply that continued permafrost decay and related vegetation changes towards minerotrophy may increase carbon and nutrient storage of mire deposits and reduce nutrient fluxes in runoff. Rapid permafrost degradation may on the other hand lead to widespread mire erosion and to relatively short periods of significantly increased nutrient loading in adjacent lakes.