Globally, ecosystems are undergoing unprecedented change due to climatic extremes and enhanced disturbances. Peatlands cover 1.1m km2 in Canada and the majority of these are treed or forested. These peatlands store >100 Gt of carbon and have helped regulate the climate throughout the Holocene. However, northern peatlands are now subject to the compounding effects of climate change, enhanced natural disturbances, and anthropogenic degradation, putting a strain on their carbon storage and sequestration functions. The impact of wildfire on the peatland carbon balance is determined by the severity of the wildfire effects and the rate of recovery, both of which are influenced by ecohydrological feedbacks, from the plot to watershed scale. This research elucidates the complexities and nuances of forested peatland ecohydrology and how it relates to long-term carbon storage. Small-scale trade-offs of water retention, shading, and evapotranspiration determine peat moisture and control the severity of smouldering combustion. Above-ground biomass affects shading and evapotranspiration but also fuel loads that contribute to fire intensity. Peat properties influence water retention and peat combustion carbon losses. Interestingly, when accounting for the interconnected nature of these drivers we find that the best mechanism for long-term carbon storage and sequestration could be compression of peat and the removal of trees from stands.