A large proportion of northern peatlands consists of Sphagnum-dominated ombrotrophic bogs. In these bogs, peat mosses (Sphagnum) and vascular plants occur in an apparent stable equilibrium, thereby sustaining the carbon sink function of the bog ecosystem. How global warming and increased nitrogen (N) deposition will affect the species composition in bog vegetation is still unclear. We performed a transplantation experiment in which mesocosms with intact vegetation were transplanted southward from north Sweden to northeast Germany along a transect of four bog sites, in which both temperature and N deposition increased. In addition, we monitored undisturbed vegetation in control plots at the four sites of the latitudinal gradient. Four growing seasons after transplantation, ericaceous dwarf shrubs had become much more abundant when transplanted to the warmest site which also had highest N deposition. As a result ericoid aboveground biomass in the transplanted mesocosms increased most at the southernmost site, this site also had highest ericoid biomass in the undisturbed vegetation. The two dominant Sphagnum species showed opposing responses when transplanted southward; Sphagnum balticum height increment decreased, whereas S. fuscum height increment increased when transplanted southward. Sphagnum production did not differ significantly among the transplanted mesocosms, but was lowest in the southernmost control plots. The dwarf shrub expansion and increased N concentrations in plant tissues we observed, point in the direction of a positive feedback toward vascular plant-dominance suppressing peat-forming Sphagnum in the long term. However, our data also indicate that precipitation and phosphorus availability influence the competitive balance between Sphagnum, dwarf shrubs and graminoids.