Permafrost stores globally significant amounts of carbon (C) which may start to decompose and be released to the atmosphere in form of carbon dioxide (CO2) and methane (CH4) as global warming promotes extensive thaw. This permafrost carbon feedback to climate is currently considered to be the most important carbon-cycle feedback missing from climate models. Predicting the magnitude of the feedback requires a better understanding of how differences in environmental conditions post-thaw, particularly hydrological conditions, control the rate at which C is released to the atmosphere. In the sporadic and discontinuous permafrost regions of north-west Canada, we measured the rates and sources of C released from relatively undisturbed ecosystems, and compared these with forests experiencing thaw following wildfire (well-drained, oxic conditions) and collapsing peat plateau sites (water-logged, anoxic conditions). Using radiocarbon analyses, we detected substantial contributions of deep soil layers and/or previously-frozen sources in our well-drained sites. In contrast, no loss of previously-frozen C as CO2 was detected on average from collapsed peat plateaus regardless of time since thaw and despite the much larger stores of available C that were exposed. Furthermore, greater rates of new peat formation resulted in these soils becoming stronger C sinks and this greater rate of uptake appeared to compensate for a large proportion of the increase in CH4 emissions from the collapse wetlands. We conclude that in the ecosystems we studied, changes in soil moisture and oxygen availability may be even more important than previously predicted in determining the effect of permafrost thaw on ecosystem C balance and, thus, it is essential to monitor, and simulate accurately, regional changes in surface wetness.