Warming Arctic temperatures have led to permafrost thaw that threatens to release previously sequestered mercury (Hg) back into the environment. Mobilisation of Hg in permafrost waters is of concern, as Hg methylation produced under water-saturated conditions results in the neurotoxin, methyl Hg (MeHg). Thawing permafrost may enhance Hg export, but the magnitude and mechanisms of this mobilisation within Arctic ecosystems remain poorly understood. Such uncertainty limits prognostic modelling of Hg mobilisation and impedes a comprehensive assessment of its threat to Arctic ecosystems and peoples. Here, we address this knowledge gap through an assessment of Hg dynamics across a well-studied permafrost thaw sequence at the peak of the growing season in biologically active peat overlying permafrost, quantifying total gaseous mercury (TGM) fluxes, total mercury (HgTot) in the active layer peat, porewater MeHg concentrations, and identifying microbes with the potential to methylate Hg. During the initial thaw, TGM is liberated, likely by photoreduction from permafrost where it was previously stored for decades to centuries. As thawing proceeds, TGM is largely driven by hydrologic changes as evidenced by Hg accumulation in water-logged, organic-rich peat sediments in fen sites. MeHg in porewaters increase across the thaw gradient, a pattern coincident with increases in the relative abundance of microbes possibly containing genes allowing for methylation of ionic Hg. Findings suggest that under changing climate, frozen, well-drained habitats will thaw and collapse into saturated landscapes, increasing the production of MeHg and providing a significant source of the toxic, bioaccumulative contaminant.