Reductive dissolution during permafrost thaw releases iron-bound organic carbon to porewaters, rendering previously stable carbon vulnerable to microbial decomposition and subsequent release to the atmosphere. How mineral iron stability and the microbial processes influencing mineral dissolution vary during transitional permafrost thaw are poorly understood, yet have important implications for carbon cycling and emissions. Here we determine the reactive mineral iron and associated organic carbon content of core extracts and porewaters along thaw gradients in a permafrost peatland in Abisko, Sweden. We find that iron mineral dissolution by fermentative and dissimilatory iron(III) reduction releases aqueous Fe2+ and aliphatic organic compounds along collapsing palsa hillslopes. Microbial community analysis and carbon emission measurements indicate that this release is accompanied by an increase in hydrogenotrophic methanogen abundance and methane emissions at the collapsing front. Our findings suggest that dissolution of reactive iron minerals contributes to carbon dioxide and methane production and emission, even before complete permafrost thaw.