Permafrost peatlands are found in high-latitude regions and store globally-important amounts of soil organic carbon. These regions are warming at over twice the global average rate, causing permafrost thaw, and exposing previously inert carbon to decomposition and emission to the atmosphere as greenhouse gases. However, it is unclear how peatland hydrological behaviour, vegetation structure and carbon balance, and the linkages between them, will respond to permafrost thaw in a warming climate. Here we show that permafrost peatlands follow divergent ecohydrological trajectories in response to recent climate change within the same rapidly warming region (northern Sweden). Whether a site becomes wetter or drier depends on local factors and the autogenic response of individual peatlands. We find that bryophyte-dominated vegetation demonstrates resistance, and in some cases resilience, to climatic and hydrological shifts. Drying at four sites is clearly associated with reduced carbon sequestration, while no clear relationship at wetting sites is observed. We highlight the complex dynamics of permafrost peatlands and warn against an overly-simple approach when considering their ecohydrological trajectories and role as C sinks under a warming climate.